These new possibilities mean that institutions have had to become much more sophisticated risk managers because of the singular features of these financial products and intermediaries, particularly their complexity and opacity. If we factor in the natural doubts as to the sustainability of this scenario (not so much as to whether it will continue but as to how benign it will be), it becomes evident that the satisfactory behaviour of the markets and financial intermediaries should not be allowed to lead to complacency, but should be used to strengthen the soundness of institutions as a precaution against possible changes in the favourable central scenarios. Spanish deposit institutions have not been unaffected by these developments. In fact, to the favourable factors listed above should be added, in the case of Spain, a highly favourable  BIS Review 45/2005  9  macroeconomic scenario and a growth differential with the core European countries in both output and employment. This, along with the good starting position of our institutions in terms of efficiency and competitiveness, enabled the soundness and international leadership of our financial system to be strengthened. Our institutions have thus been able to meet the demand for more and increasingly complex banking products and services, and at the same time improve their profitability. Naturally, however, the above comments on the international scenario and the need for markets and institutions to maintain their operational soundness apply likewise to Spanish institutions.
I draw attention to these limitations of the Spanish economy at a particular juncture in which foreign direct investment is slowing considerably (FDI having been one of the main channels for the diffusion of technological advances), and in which the weight of high-technology imports remains very limited, despite the surge in import penetration. The prolongation of the current trends might mean that the industries most exposed to foreign competition have to adjust their staffing levels in order to maintain their business margins. Hence the importance of creating an environment conducive to technological innovation and to higher productivity, which I shall refer to later. The second area where risks have arisen from the extended expansionary phase of the economy is related, as earlier indicated, to the ongoing buoyancy of household spending on consumption and residential investment. This variable has been favoured by the notable generosity of financing conditions, and this has given rise to certain pressures on the financial position of Spanish households. As is known, household debt last year held on the upward course it has been following since the mid-nineties, clearly exceeding 100% of the sector’s gross disposable income. This new peak marks a departure from the average levels of the euro area and is beginning to draw closer to that of countries such as the United States.