Like disease detection, frisbee catching, sports prediction and stock-picking, living a moral life is a complex task. The Ten Commandments are heuristics to help guide people through that moral maze, the ultimate simple rules. They have proven remarkably robust through the millennia. Less has been more. (3)  Finance – more is more? The response to the financial crisis by banks and regulators has been swift and sizeable. Gaps in risk management have been filled, deficiencies in regulation plugged, errors by regulators corrected. This is a self-healing and familiar response. Past crises have also been met by a combination of more risk management, more regulation and more regulators. More has been more. (a)  The Tower of Basel  The foundations for today’s financial regulatory framework were laid in the 1980s. The Basel Accord of 1988 was a landmark. It was the first-ever genuinely international prudential regulatory agreement. For the first time in financial history, a minimum standard had been established for all internationally-active banks. Yet despite its breadth, the Basel I agreement was only 30 pages long. 8 This brevity came courtesy of focussing on a limited set of credit risks measured at a broad asset class, rather than individual exposure, level. Only five different risk weights were defined under Basel I, varying from zero to 100%. Calculating regulatory capital ratios was possible using pad and pen. In taking this simplified approach, the Basel Committee fully recognised its limitations. It was recognised that the role of regulatory rules was not to capture every raindrop.
However, looking ahead, some of these factors will foreseeably lose steam, owing partly to the effects of the appreciation of the euro, in nominal effective terms, and to dearer oil. These effects will give rise to a considerable reduction in the Spanish economy’s net lending vis-à-vis the rest of the world, which is nevertheless expected to remain positive over the coming years. With regard to the labour market, 2.3 million jobs have been generated since 2013. These developments, along with the reduction in the labour force as a result of population ageing, have enabled the unemployment level to be reduced most significantly. The unemployment rate thus stands below 15%, 12 pp down on its 2013 high (see Chart 10), although still far off the level observed in the euro area on average (slightly above 8%). Most recently, the robustness of employment has eased in line with developments in activity, making for continuing and very low growth in productivity, as has been the case since the start of the recovery. 5/14  Strong job creation has been accompanied by a modest increase in wage compensation in the past four years. Chiefly contributing to this has been the high degree of slack in the labour market which dates back to the start of the current pick-up, and the expectations of very low inflation rates during these years.