The costs of issuing these liabilities are higher than those for senior debt and other secured instruments and, in fact, rise as they become more similar to capital in terms of seniority. But their cost also decreases as the solvency of the issuing bank increases. 12/17  Compared with other European countries, Spanish banks have lower solvency levels almost irrespectively of what definition of capital is used. It is true that they comfortably exceed minimum regulatory requirements, that stress test results suggest they are more resilient to the risks now facing them, that is there is a certain dispersion among banks and that, in terms of leverage ratio, they exceed the European average. However, in a highly integrated world of competition for global financial resources, solvency is a key signal. Moreover, as I mentioned earlier, capital is the first line of defence against unexpected losses and therefore a means of reducing the likelihood of a systemic crisis. In this respect, over the last two years the phase-in top-quality capital (CET1) ratio has decreased by nearly one percentage point. This indicates that banks as a whole have not replaced to a sufficient extent the lower quality capital elements temporarily included in this category by others with a higher loss-absorbing capacity. This has not been an across-theboard phenomenon (many banks have raised their solvency ratios), but some have been guilty in this respect. Main macro-financial risks Apart from these challenges, what are the macro-financial risks confronting the Spanish financial system?
This obviously had an impact on bank solvency, giving rise to significant capital requirements for some banks, which needed public support to cover the capital shortfalls identified. Since then, the situation has improved considerably, with the help of the monetary policy measures implemented by the European Central Bank to ensure that solvent banks had sufficient funding. Against a background of significant decline in banking activity, banks have managed to reduce the weight of troubled assets in their balance sheets very significantly. Specifically, 7/17  the NPL ratio has fallen by more than eight percentage points to stand at 5.8% of total lending. Foreclosed assets, meanwhile, are only 50% of the level recorded in 2014, so that their weight has been reduced to 3.6% of assets, vis-à-vis the resident private sector. Active management of these assets by banks, under supervisory pressure, has played a very important role in this process. In any event, there is still significant room for improvement; before the international financial crisis, the NPL ratio was below 1% and foreclosed assets were practically non-existent. The restructuring of credit institutions is also reflected in the reduction in the weight of the real estate sector (broadly defined),2 which stood at 52% of GDP in 2018, as compared with 99% in 2008. 2  Loans for house purchase, plus loans to businesses in the construction industry and related areas.