These major provisions have been possible because Spanish banks, with their retail business and the significance of their banking franchise, were able to obtain high levels of profitability in the recent past, despite maintaining some of the lowest levels of leverage among European banking systems and having to retain a portion of such profits under the system of countercyclical provisions in place. On top of that, Spanish banks have increased their capital buffer over minimum requirements by € billion – around 5% of GDP – in the last three years. After the first crisis of mistrust, the Greek debt crisis, the Bank of Spain, within the European Union, led the disclosure process through the carrying out and subsequent publication of stress tests which, in a coordinated fashion, were conducted by the European supervisory authorities. Spain, whose weight in the Community banking system is around 8%, was represented in the stress tests by 27 banks, 30% of the total number analysed. This figure meant that information on 90% of the Spanish system was disclosed, compared with the minimum of 50% required by the European authorities. All listed Spanish commercial banks and all savings banks were subjected to this exercise. Significantly, the exercise consisted of very tough scenarios for Spain and it was carried out under the attentive eye and control of the Spanish supervisor. For instance, it assumed that the Spanish economy was going to undergo a second recession, with a cumulative fall in GDP of close to 3 percentage points.
This was far from the market consensus and the actual figures, given that the Spanish economy ended 2010 with a growth rate of 0.6%. Further, the haircuts applied to assets were most notable: 28% in the case of housing, 50% in that of uncompleted housing and 62% in that of land prices. In addition, a fall in net operating income of 40% was assumed, one of the most severe for all the countries involved in the exercise. Let me insist on the rigor of our stress testing, as some have broadly criticised the test because some banks from other countries were given a seal of approval only to collapse a few months later. Not only we tested all the banks but the information published by Spanish banks for the stress test was more detailed than that of the other countries. Our aim was to enable analysts and investors to check the stress test for themselves and know what volumes of problem exposures and expected portfolio losses were involved. As a result of the measures mentioned (greater disclosure, amended regulatory framework for savings banks and progress in restructuring), Spanish banks, not only the leading ones  2  BIS central bankers’ speeches  but also a large number of medium-sized banks and savings banks, were once again able to re-fund themselves on international wholesale markets, although the cost of funds continued to reflect the sovereign risk premium.