The dollar’s fall in the period 2002-04 has not prompted a turnaround in the progressive widening of the US external deficit, either because, as is well known, depreciations tend only to correct currentaccount deficits with a lag, or because of the aforementioned asymmetry in the behaviour of the dollar against the main currencies and the fact that it has scarcely depreciated against the currencies of the countries that are running the counterpart surpluses. In turn, in a situation of large current-account surpluses and strong capital inflows, the Asian countries with de jure or de facto fixed exchange rates against the dollar continued to build up sizable international reserves. The need of the Asian central banks to place these reserves also partly explains another salient feature of economic developments in 2004: the maintenance of long-term interest rates at abnormally low levels. This is also largely attributable to the persistence of low inflation expectations, set against highly credible counter-inflationary monetary policies, and to the conditions of ample liquidity in which international financial markets operated. For much of the year, European bond yields were markedly synchronous with their US counterparts, despite the different position of the fundamentals of the two economies. From November, however, European rates declined, moving progressively away from US rates so that the yield spread between these areas widened considerably. This more recent development is consistent with the uncertainty over economic recovery in the euro area and the brighter outlook for the US economy.
of active scrutiny of the market, of shareholders and of creditors, which implies a continual strengthening of transparency. It is this latter aspect, relating to Pillar III, which is the least well-known, although it is that with the greatest potential in the medium term for disseminating best practices in risk management. Of course, the completion of Basel II is only the beginning of the implementation process, and not just in credit institutions, but also in their supervisors. In this respect, I believe that our institutions and our supervisory model are in a magnificent position to lead the implementation process insofar as quality is concerned. And this process will yield better managed institutions and more effective supervision. These two key regulatory issues raise other points. First, the development of IAS and Basel II make it necessary to strengthen international co-operation in supervision and regulation. The international expansion of Spanish banking and its presence in a larger number of jurisdictions with differing features raise the need to establish closer bilateral relations with the authorities of other countries, so as better to comply with the respective responsibilities. In addition, the new European legislation on financial conglomerates also addresses in depth the need for greater co-operation. Specifically, the EU has opted for a solution based on co-operation between supervisors as the most appropriate (and essential) approach.