However, as from last  BIS Review79/2009  7  autumn a second wave of shocks was unleashed, resulting in a real global crisis which, naturally, is impacting Spanish banks. The Spanish economy’s entry into recession has consequences for banking and bad debts. In particular, such repercussions include those arising from the high sensitivity of employment – and, therefore, of households’ ability to pay – to the deterioration in activity, and those from the adjustment of the real estate sector, the relative weight of which in bank balance sheets had become significant. The deterioration in the economic situation reduces the demand for credit of bank customers, whose spending plans and income expectations are normally revised downwards during economic downturns. Likewise, banks become more cautious about granting loans as a result of the subsequent upward revision of the risk profile of borrowers. In combination, these two factors translate, as we have actually seen, into a substantial slowdown in bank credit. Based on the past cyclical behaviour of this variable, the growth rate of bank credit will tend to stand below that of GDP. This cyclical component of credit is currently being reinforced by the difficulties still besetting wholesale funding markets and by the need both in Spain and in the rest of the international financial system to redress the high levels of leverage attained in the past. The behaviour of banks’ bad debts also follows certain cyclical patterns.
As regards microprudential supervision, the Report proposes the creation of a European Financial Supervision System. Under this system, the current Level 3 Committees for banking, insurance and securities would be transformed into three European supervisory authorities with the power to take binding decisions in certain fields. As to macroprudential supervision, the creation of a European Systemic Risk Board was proposed. Its main purpose would be to detect general risks, apprising the competent European authorities thereof, where pertinent, so they might take the appropriate decisions. These are some of the initial steps of a process which will no doubt be long, but which will profoundly affect the systems of each and every European country. It is thus important that Spain should participate actively in the work of these international fora. In this respect, it is most satisfying that Spain has been welcomed as a member of the Financial Stability Board,  BIS Review79/2009  9  the successor of the Financial Stability Forum created in 1999, in which we had not hitherto participated. To be sure, the Banco de España’s experience in the design and implementation of a regulatory and supervisory system that has proven most effective during this crisis has been one of the factors that have helped Spain merit this position. And here I shall conclude, though not without first thanking the Governing Council, the Executive Commission, the Directors General and all our staff for their work this year.