As I will explain in the first part of my remarks, the three pillars of Basel II introduce a coherent system of checks and balances - or perhaps reality checks - into the supervision of capital. Basel II will likewise contribute to the resilience of the banking system on a macro level. In the second part of my remarks, I will discuss some of the factors that suggest that Basel II will more broadly become an effective tool of public policy. Of course, for Basel II to be effective at the micro and macro levels, we will need to undertake considerable work in the months ahead to prepare for its consistent implementation. In the third and final part of my presentation today, I’d like to share an update on what supervisors are doing currently to prepare for the implementation of the new capital framework. I’ll include as well some thoughts on additional things that banks can do to promote a smoother transition to the new framework. 2. Will Basel II promote sound risk management within individual banks? To begin, I would like to discuss why I believe that Basel II will promote reasonable and realistic decision-making on a microeconomic level with regard to each bank’s capital needs. This effect is critical now that qualifying banks choosing an advanced approach to credit or operational risk will be allowed to apply some of their own assessments of risk in the calculations of their minimum capital requirements.
Alongside expenditure, it is important to identify and resolve any inefficiencies in the use of the public funds earmarked for education. The AIReF is already doing this in various autonomous regions. Recent reforms in this area (laws governing education, vocational training and the university system) should also be assessed. The third factor limiting productivity is the regulatory environment, which affects activity and the efficient allocation of resources among firms. The evidence points to a significant accumulation of capital in low-productivity firms between 1995 and 2007 in Spain.14 This allocation has barely become any more efficient in the most recent period.15 To a certain extent, this situation has come about because firms’ access to financing seemingly depends less on their productivity and more on the collateral available to them.16 In this respect, in spite of significant improvements in financing in recent years, Spanish firms – in comparison with firms in the euro area – continue to be heavily reliant on bank loans and have relatively limited access to venture capital. This funding structure, which is closely linked to the collateral available, restricts not only firms’ growth possibilities and their capacity to respond to potential shocks, but also negatively affects their ability to carry out innovation projects, which, by their very nature, have a relatively high risk profile. Improvements in this area will also require initiatives at European level, such as completion of the capital markets union, for example.