The banks need to compile a reliable database for all operational risks that have arisen in the past 5 years or so and assess losses recorded during the period. It is only then one can simulate and assess how much capital should be allocated if a similar operational risk were to take place. Stress testing therefore is not only an add-on, but also a cushion for management of risks in terms of validation and allocation of capital and it is one of the highly accepted and commonly used tools. VIII. Cross-border transferability issues  This is relevant to both supervisors and banks where home and host supervisors require to agree on a common approach. Do banks which have global operations adequately take into account legal issues, capital issues and assumptions about liquidity or capital transferability? How well are local managers able to respond to host supervisory concerns? Currently, there is no sufficient data or experience to deal with these issues. All know there are legal issues in transferring capital on cross-border basis which are relevant to banks which have assets linked internationally. IX. Compliance by financial conglomerates  Generally, a financial conglomerate is defined in terms of combined activities, such as banking, securities and insurance. To what extent the financial conglomerate would use regulatory arbitrage and not adequately assess the systemic problems is a key element under Basel II?
This level is 1 pp of GDP higher than the average volume of this type of investment during the crisis. In any event, foreign direct investment in Spain was impacted to a lesser extent than portfolio investment during the recession, with no divestment recorded in any year, in contrast to what occurred with portfolio investment. That reveals its greater stability compared with other forms of international investment. Another notable characteristic of the recent trend of this item is the decline in the relative weight of these capital inflows in the form of debt liabilities – which comprise intra-group loans and have scarcely accounted for 12% of the total since 2013, compared with over 30% during the pre-crisis years (average between 1999 and 2007) – and the increase in investment in the form of equity. Thus, while in recent years the volume of foreign direct investment has, in terms of GDP, been around 1.5 pp below that observed during the pre-crisis expansion, its composition is sounder, since it is less vulnerable to adverse shocks. Challenges The future outlook for the foreign sector will be influenced by protectionist tensions and by the uncertainty still surrounding the final shape of EU-United Kingdom relations in the wake of Brexit. On the evidence available, the protectionist tensions between the United States and China may be expected to affect global trade flows in two ways: on one hand, a notable direct impact via the global value chains; and on the other, indirect adverse repercussions via their effects on global confidence and investment.