Pablo Hernández de Cos: Financial stability and macroprudential policy - objectives, tools and challenges

Speech by Mr Pablo Hernández de Cos, Governor of the Bank of Spain and Chair of the Basel Committee on Banking Supervision, at a conference at the University of Zaragoza, 27 April 2021.

The views expressed in this speech are those of the speaker and not the view of the BIS.

Distinguished Rector of the University of Zaragoza, Distinguished Dean of the Faculty of Business Economics, academic and other authorities, ladies and gentlemen. Good morning.

It is an honour and a pleasure to be able to participate in this event organised by the University of Zaragoza. I should like to begin by expressing my gratitude to Vicente Salas, Chair of Business Economics at this University and the promoter of this meeting, who was linked for many years to the Banco de España in various capacities, as an economic adviser and as a member of our Executive Commission and our Governing Council. Over these years of intense collaboration, he played a pioneering role in theoretical and empirical works on the subject to which I wish to devote my address today: financial stability and macroprudential policy. In these papers he did not confine himself solely to studying various aspects relating to the financial system, but also devoted much of his research to analysing the interaction between the financial sector and the real economy, especially as far as firms are concerned. As I shall attempt to convey in my address, this interrelation is one of the key distinguishing characteristics that warrant and condition macroprudential policies.

Financial stability is of fundamental significance for society's well-being. This is why all countries have institutions entrusted with ensuring financial stability is maintained and, in particular, with taking macroprudential policy decisions. In Spain's case, and in relation to the banking system, it is the Banco de España -as part of the related European mechanisms- that performs these functions.  

Financial stability and macroprudential policy

The financial system plays a key role in the economy – namely financial intermediation – which, moreover, affects all sectors: households, firms, government, financial firms themselves, etc. The markets and intermediary companies that comprise the financial system raise funds from economic agents with surpluses (savers) and distribute them among those that need to finance investment projects or consumption decisions (debtors).