True, during the expansionary phase, private-sector debt grew at very high rates, although it should be clarified that the growth in asset prices – unwarranted by fundamentals – was less than in other countries. Yet during these three years the Spanish banking system has proven reasonably resilient; only two small entities had to be taken under central bank control, and the volume of public aid made available was very small compared with the public resources earmarked to this end in other countries. The explanation for this different outcome in apparently similar situations must be sought in the quality of banking regulation and supervision, and in the retail banking-based business model of banks in Spain. What happened was that the countries which saw their banking systems collapse were largely those which, in the preceding years, had most vigorously defended the benefits of a “hands-off” government approach to the functioning of the financial sector. This was quite the opposite of the approach of the Banco de España, a central bank that took to heart the lessons of the serious banking crises of the 1980s and early 1990s in Spain. BIS Review 171/2010  1  Until the crisis erupted, the prevailing doctrine had advocated light-handed regulation, considering both our supervisory approach and our banking system’s business model, centred on traditional banking activities, as outmoded. But in the wake of the crisis, the pendulum has swung. Now the predominant approach in financial regulation has gone to the other extreme.
Testifying to this is the work programme in place in the main international agencies and fora, such as the G20, the Financial Stability Board and the Basel Committee on Banking Supervision. Intense work is under way to introduce major changes into the international regulatory and supervisory framework so as to prevent similar crises from recurring and to improve the financial system’s resilience moving forward. Such changes include most notably the new rules known as Basel III, which alter the regulation of the banking sector at the international level in several fundamental respects: banks will be required to have more and better-quality capital; explicit requirements will be made in respect of liquidity risk; and measures will be taken to mitigate the procyclical behaviour of financial activity. Further, the FSB is working on the treatment of systemic banks, i.e. those considered too important to fail due to their size, the level of complexity of their operations or their interconnectedness with other financial system participants. In future, these banks will have to meet greater regulatory and supervisory demands, which will need to be adapted to the type of activity, complexity and structure of each bank. Headway has been made and is being made in many other areas, such as remuneration in the financial sector, the regulation of rating agencies, etc. Generally speaking, Spain has much to learn from other countries about economic policies.