That would have been a mistake as the problems were different. Spain’s task was fortunately not to urgently recapitalise its large banks, which were indeed collapsing in other countries owing to deficient regulation and supervision. The unavoidable issue here was to oblige certain small and medium-sized institutions removed from market discipline – the savings banks – to restructure, after they had lent in excess to the real estate sector. In Spain, rather than recapitalising, it was vital to restructure these banks and clean up their balance sheets. To have recapitalised banks before cleaning up their balance sheets would have been to waste public funds, without having achieved changes in management or capacity reductions, which are essential for the soundness of the income statements of the surviving banks. 4  BIS central bankers’ speeches  What is clear now is that the reform of the governance of savings banks and their subjection to market transparency and discipline should have been carried out sooner, in the boom rather than in the crisis. The banking crisis management legislation then in place, which was of no use for addressing non-commercial institutions and was not adapted to the requirements of the European legal framework, which prohibits monetary financing, should also have been amended at that time.
A large number of Spanish firms have remained in operation and in profit as a result of having undertaken rapid adjustment, although unfortunately this has almost always been achieved through the only channel permitted by our obsolete and inefficient labour market: staff layoffs. Households, whose saving rate had fallen to 11%, reacted by swiftly raising it, which is enabling them to lower the rate in the present phase of the adjustment. At the same time we saw how non-energy inflation, which had been continuously far above that of our euro area partners since the creation of the single currency in 1999, fell substantially, to the extent that, in 2009 and 2010, its annual rate was under 1%, holding below that of the euro area. Finally,  BIS central bankers’ speeches  1  with regard to the banking sector, the rapid expansion of credit, which had reached a rate of 25% per annum and had been the most important source of excessive household and corporate indebtedness during the years of expansion, fell rapidly to stabilise at slightly negative levels over the past few years. Some might say that all this was inevitable, that ten years of imbalances required a correction, and that is partly true. But if we compare with the adjustment observed in other countries in a similar situation, the reaction of the Spanish private sector has been notably swift.