The Fund needs to make more of its presence at inter-governmental groups such as the G7 and the G20. And it needs to experiment with more flexible ways of exploring key policy issues with relevant groups of members, to add depth to the formal exchanges typical of large set-piece international gatherings. After a couple of years debate, the prospects for achieving meaningful reform now look promising, following the Fund’s Annual meetings in Singapore. The agenda for reforming surveillance includes a new focus on multilateral issues, including global financial issues and a new procedure for multilateral surveillance. The Managing Director has launched a first round of multilateral consultations on global imbalances. These are a potentially important innovation in the way the Fund interacts with key policymakers, but as they are still under way, I shall not comment further. Instead I want to focus on the other key area for reform, where there are some important outstanding issues. This is the work now in hand to clarify and update the operational guidance on surveillance, through a thorough review of the 1977 Decision and by designing a new annual remit for surveillance. This is aiming to provide a clear, up-to-date set of guiding principles, and a firmer operational foundation for surveillance. This matters because the Fund can only be effective in encouraging countries to fulfil their obligations if there is a clear and shared view of what those commitments are, and a coherent and transparent operational framework for assessing compliance.
•  The first characteristic, which has set us apart from other supervisors, has been our strong role in accounting rule-making for the banking sector in Spain. This has meant that the accounting rules for the banking sector take into account supervisory sensitivities, whilst being also consistent with IFRS. One example of this is the socalled “dynamic provision”, which we introduced in 2000. This allowed Spanish banks to build up a significant provisioning buffer in a transparent manner, to be used in bad times, when problem loans increase. In 2005, the Bank of Spain reformed the dynamic provision when adopting International Financial Reporting Standards. Despite the reform, banks kept the strong provisioning level set by the former rules, and today they face the current situation with a sound buffer of loan loss provisions (1.3% of total assets at the end of 2007, and this despite bad loans being at historically low levels). •  The second characteristic that has proved useful is the Bank of Spain’s prudent approach to bank regulation. One example has been our stance on off-balance sheet investment vehicles. We have not prohibited the development of investment vehicles, but we told banks that if they set up Special Investment Vehicles, these should be consolidated with the group, and therefore be subject to capital requirements and provisions. Under these conditions, no such vehicles were set up. As a consequence, the Spanish banking system has not been so seriously hit by the de-leveraging process as other systems that have a freer attitude towards these vehicles.