They can be contrasted in two dimensions: the probability that there is some kind of “disequilibrium” that needs to correct; and the probability that any such correction, or adjustment, will produce destabilising spillovers in the financial system. On the first – the probability of adjustment – it is widely agreed by economists that one symptom of global imbalances, the US current account deficit, is unsustainable. It cannot continue indefinitely at the same rate because eventually the US’s external debt-servicing burden would become too great. That there will be adjustment, somehow or other, is therefore viewed by most commentators as near certain. By contrast, while the low risk premia across credit markets are hard to explain, no one can say for certain that they are unsustainable. A number of changes in the environment point towards some sustainable reduction in risk premia: more credible monetary regimes; more flexible labour and product markets, helping economies to adjust to nasty shocks; improved instruments and markets for managing risk; better diversified portfolios. Whether or not that merits the degree of risk premia  1  The importance of communication to monetary policy was explored more fully in Tucker P M W (2006a), “Reflections on operating inflation targeting”, Speech at Chicago Graduate School of Business, May 2006, Bank of England Quarterly Bulletin, Summer 2006, pp 212-224. 2  BIS Review 44/2007  compression seen over recent years is open to question. For some while now, I have encountered few people in the market who regard credit risk as fairly priced.
Fernando Restoy: Challenges for the Spanish banking sector Closing address by Mr Fernando Restoy, Deputy Governor of the Bank of Spain, at the XXI Meeting of the Financial Sector, organised by ABC, Deloitte and Sociedad de Tasación, Madrid, 1 April 2014. *  *  *  Good morning. Thank you, Paco, for your kind words. It’s a great pleasure for me to be with you this year for the closure of the 21st edition of the Financial Sector Meeting organised by ABC, Deloitte and Sociedad de Tasación, in which the Banco de España has traditionally taken part. The conference has had a very full day, in which the country’s main financial institutions have had their say. Allow me to bring some thoughts to the discussion on the main challenges for the banking sector ahead of the changes in the regulatory and supervisory framework and, most particularly, ahead of the banking union. 1. Introduction  Looking back, I believe such significant structural transformations as those currently sweeping the banking industry are almost unprecedented. At present, the banking sector must face a host of highly relevant changes on various fronts.