Disponible en Español


II Course on Financial Stability

Digital Course. November 16 – 20, 2020.


The second edition of the Course on Financial Stability, was jointly organized by CEMLA and Banco de España, the event count with a distinguished group of experts from CEMLA, Banco de España, academia and International Institutions who shared their perspectives and knowledge on financial stability.

The Course has the aim to become a reference across the region and, more importantly, to contribute training CEMLA’s Membership with analytical capacity to better face new challenges in financial stability analysis and monitoring.

The Course was held on a digital format on November 16-20, 2020, and was attended by 68 representatives from 20 institutions and associates of CEMLA from the following countries: Argentina, Bolivia, Bahamas, Barbados, Belize, Brazil, Chile, Colombia, Curaçao en Sint Maarten, El Salvador, Honduras, Jamaica, Mexico, Nicaragua, Panama, Peru, Spain, Suriname and Trinidad and Tobago. The event was focused on the following topics: introduction to financial stability, interconnectivity and stress testing, modeling financial stability in general equilibrium, macroprudential policy: instrumentation and strategy and, governance and international policy agenda.


Financial stability analysis and systemic risk.
Carlos Pérez

Mr. Pérez explained key concepts of financial stability analysis, risk, and vulnerabilities regarding risks to financial stability. Then, he explained the relevance of financial stability from a macroeconomic perspective such as the relation of recessions with the materialization of financial risks and spikes in risk aversion. In the second section he developed the dimensions of financial stability metrics, for instance, risk and vulnerability indicators, risk dimension, endogeneity, negative impact on liquidity and risk scope. In this context, the Covid-19 pandemic is an exogenous shock the impact of which is a function of the productive structure.

The loss absorption capacity of the banking sector allows to sustain the flow of credit and facilitate the recovery if negative exogenous elements are mitigated. Stress tests include different variables related to risks and vulnerabilities, also different scenarios with risk materialization and assess the sufficiency of loss absorption capacity. The systemic risk indicator (SRI) consists in twelve individual stress indicators for different segments of the Spanish financial system.  Bank of Spain takes into account cross-correlations to calculate the SRI, then higher values of SRE mean higher correlation among the four market segments (government, equity, money and financial intermediaries’ market).

Finally, Mr. Pérez explained the linkages between economic and financial cycles. The credit-to-GDP gap in Spain is greater than the threshold for the Countercyclical Capital Buffer (CCyB) because of a reduction of the GDP in the second quarter in 2020.  Currently, it cannot be interpreted as a systemic risk warning. The use of macroprudential tools to moderate cycles, such as the CCyB, is useful to avoid excessive credit growth and reduce the probability of crisis episodes. Based on an empirical literature review, the relaxation of monetary conditions can increase incentives of banks to take risks in their credit portfolios, in particular, for short term rates.


Solvency analysis and profitability of bank entities.
Carlos Trucharte

Mr. Trucharte explained that, in order to know the financial situation and the resilience, it is necessary to know the income statement and the solvency of the credit institutions. These elements are interconnected with each other. Higher solvency of entities implies a better market valuation and thereby reduces financing costs. Tapping capital reserves is the last resort of an entity in case of unexpected losses. First, current profits should be used to compensate losses. Mr. Trucharte presented the main elements of the profit and loss account such as the interest margin, gross margin, operating margin, results before taxes, among others.

He also explained the results of these elements for Spain and described the evolution of each one from 2011 to second quarter 2020. Afterwards, the presenter explained the main profitability metrics such as ROA, ROE, and ROTE and presented the evolution of these indicators for the Spanish banks and European banks. In December 2019, it was found that the ratio of return on equity of the main Spanish deposit institutions was above the European average (5.8%) and above of the main economies of the EU. Regarding the efficiency ratio of Spanish entities, it is one of the lowest in the EU, standing slightly above 50% (December 2019). The solvency of entities measures their ability to face unexpected losses that arise in the development of their operations. The main solvency metrics are the capital ratios and the leverage ratio (which does not include risk weights). Likewise, the evolution for the Spanish case and for the main economies of the EU of the solvency ratio and leverage were analyzed.

Finally, in the Spanish case, capital buffers are just over 90,000 million euros. The sum of these capital resources could cover a volume of losses equivalent to almost twice the current volume of risky credit in the system, approximately 8.2% of total bank credit. Mr. Trucharte pointed out that it must be taken into account that support measures, such as defaults and loan programs with guarantees approved by the government, would significantly increase the loss amount that could be absorbed by these buffers.


Solvency analysis and profitability of non-bank financial institutions.
Irene Pablos

Mrs. Pablos explained that financial crisis revealed the need to monitor the non-bank financial institutions, especially when they are involved in credit intermediation activities that may pose bank-like financial stability risks such maturity/liquidity risks, leverage, or imperfect credit risk transfer. In the last 20 years, the non-bank financial sector has risen steadily, reaching 184 USD trillion of total assets in 2018. Also, Mrs. Pablos pointed out that non-bank financial sector is very heterogeneous and its size and composition varies across jurisdictions.

Regulation and surveillance of the non-bank financial sector are also very heterogeneous across jurisdictions and type of institution, and have evolved in recent years. Regarding insurance companies, the new Solvency II measures in place in Europe are based on solvency capital requirement (SCR) metrics and minimal capital requirements (MCR). They should cover and value the main inherent risks of each kind of insurance company. Moreover, Mrs. Pablos presented financial stability measures related to the credit intermediation, maturity transformation, liquidity transformation, and leverage of the activities of the non-bank financial sector. Regarding investment policies and financial stability in the fixed income markets, the investment mandates of certain financial intermediaries can amplify the negative effects for financial stability through credit rating downgrades. Since the global financial crisis (GFC), collective investment funds classified as investment grade have increased the share of BBB securities in their portfolio. In particular, the effect could be acute if credit rating downgrades represent a shift from investment grade to high yield. Interconnections among financial institutions through holdings of securities issued by common issuers could amplify shocks.

Finally, Mrs. Pablos explained the Spanish experience during the COVID-19 crisis which triggered a rapid and intense increase in the systemic risk indicator of the Spanish financial system. The level of stress of the non-bank financial intermediaries is particularly high, driven by strong decreases in asset prices and volatility spikes. Market risk is a key area of analysis. Central banks’ asset purchases have contained risk premiums, though there is a higher heterogeneity in corporate bond yields. Regarding liquidity risk and assets of investment funds, some funds had to sell part of their assets exerting a further downward pressure on prices in the markets.


Interconnections between the different financial intermediaries.
Serafín Martínez

This session was designed to understand the interconnectedness of the financial system and the implications for the possibility of cascading failures by measuring systemic importance of participants in these networks with centrality algorithms such as the DebtRank.

Dr. Martínez started his intervention with an introduction to financial networks and network analysis presenting some types of graphs, topological measures, and other metrics. He also explained the term of centrality and the different properties of this network structural analysis. Financial contagion is defined as the spread of a shock among banks through the financial network, associated with higher connectivity, funding liquidity, and common assets contagion. Financial contagion is one of the main components of the systemic risk. The different types of contagion are: default cascades, funding liquidity contagion and the assets fire sales externality. Measures of financial contagion can be divided in i) system level measures, which include systemic risk and expected systemic loss; and ii) bank level measures, with systemic importance and vulnerability. Some of the main results are that systemic risk is a consequence of the interconnectedness among institutions in the financial system. Measuring systemic risk enables better decision making and risk management for financial authorities.

Moreover, the importance of assessing systemic risk was explained through the quantification of systemic risk in multilayer networks for different types of exposures like deposits and loans, security cross-holding, derivatives and foreign exchange. Dr. Martínez explained that systemic risk arises from indirect interconnections that occur when financial institutions invest in common assets (overlapping portfolios) as well as from direct interbank exposures (default contagion). Finally, Dr. Martinez presented the use case from Uruguay where a systemic risk metric for an extended network which includes the interbank network, the banks-firms bipartite network and the intra-firm exposures network is employed. The main contribution of the paper is the precise estimation of the contribution of intra-firm exposures to the overall systemic risk. The results show an important underestimation of systemic risk if the information of intra-firm exposures is ignored.


Stress testing,
Nadia Lavin

This session was organized in the following sections: the introduction to macroprudential stress tests, methodologies and scenarios, architecture of the Bank of Spain Stress Test, the Spanish experience during the COVID-19 crisis and finally climate change stress tests.

Firstly, Mrs. Lavin explained the origin of stress test which lies in the interest of the banks to improve the management of their risk. Stress tests are a useful tool for authorities who are responsible for evaluating the strength of the financial system. The purpose of stress tests is to identify vulnerabilities while assessing and evaluating the loss absorption capacity of a given banking system when these vulnerabilities crystallize and become real shocks. Mrs. Lavin identified the stress test key elements which are the scope of the stress test exercise, the calibration of the macroeconomic shocks, the estimation of the impact of macro shocks and the policy formulation stage. In this first stage, one must decide the level of the analysis in terms of participants and areas of study, as well as the time horizon for the exercise. In the second stage, the calibration of the macroeconomic shocks, one should identify the type of shock which must be determined, the size of the shock, and the implementation. In the third stage, one has to choose certain key variables that affect directly the financial condition of the system analyzed. In the last stage, measures must be considered that will be helpful for a smooth working, efficiency, and continued stability of the system.

Then, Mrs. Lavin explained the Spanish experience during the COVID-19 crisis. The baseline scenario for Spain reflects a cumulative fall in GDP of 1.6%, with the decline much exacerbated under the adverse scenario. A sectoral analysis was carried out to assess the situation of the companies that a prior is considered more sensitive to the COVID-19 crisis. The main aspects studied were exposures and total assets distribution, non-performing exposures, main financial ratios, write-offs, net profits vs GDP and first impact on the stock market. The adverse impact of the COVID crisis on the non-performance of loans will vary among sectors and firms, and will pivot on their initial financial position. Finally, Mrs. Lavin presented climate change stress test analysis focused on the impact on the main macroeconomic variables, and their repercussions on the portfolio and activity of each institution though credit, market, and operational risks. One of the main challenges is the availability of relevant data which should be advanced now to enable future analysis.


A general equilibrium model for financial stability.
Dimitrios Tsomocos

Professor Tsomocos presented a Chilean study where the aim was to identify the impact of real and nominal shocks to financial stability for small open economies and commodity exporters. Professor Tsomocos developed a model for a small open economy to study financial stability. First, he explained the Chilean context and the economic characteristics that are important to understand the evolution and the trends of this economy as a result of an evolution to an open economy with a safe banking system. For instance, there is still dependence on copper that may feedback to the financial sector directly or indirectly. The size of the impact depends on the country’s external position and bank heterogeneity. This paper analyses macroprudential regulation in fragility times with macroeconomic shocks being amplified due to the presence of pecuniary externalities. There are two sources of externalities, one is the cost of default and the other are collateral constraints dependent on market valuation of capital. In this model, the banking sector is perfectly competitive and there is ex post heterogeneity manifested on idiosyncratic shocks experienced by small banks.

Professor Tsomocos demonstrated that adverse shocks to copper price has both real and financial effects that reinforce each other. The default rates transmit the impact to interest on unsecured borrowing and reduces investment. With this model, it is possible to study the effect of shocks on monetary policy to financial stability. Professor Tsomocos found that for the case of a small open economy, liquidity and CCyB regulations are complementary and allow to smooth the cycle, thus improving welfare (i.e. GDP and consumption). The model can be used to include more features of the financial sector and to study the middle run effects of Covid-19 shock and policy responses (e.g. special credit facilities, forbearance programs, among others).


Calibration and results of the general equilibrium model.
Dimitrios Tsomocos

In this session Professor Tsomocos presented a model that studies the externalities that emerge from intermediation and examined regulation to mitigate their effects. This model is based on the classic Diamond-Dybvig model with some modifications. There are three players in the model: entrepreneurs, savers, and bankers. Banks provide liquidity and monitoring services; are funded by deposits and equity; make risky loans; hold liquidity and are subject to limited liability; and face endogenous run risk.

The assumptions for this model are (i) the quasi-linear preferences for consumption and additional utility from the transaction’s services of deposits, (ii) the entrepreneurs are risk neutral and have no endowment of their own and (iii) the entrepreneurs have a linear production function, but incur a convex (effort) cost. In the optimization problem, a productivity shock is privately revealed to entrepreneurs and banks need to spend resources to learn it. The bank monitors if the net expected benefit from monitoring is positive. If the bank does not monitor, the entrepreneurs will report the bad shock and default.

To sum up, this model presented fragile financial intermediation where banks offer liquidity and monitoring services. Also, this model studied the externalities from intermediation and derived optimal regulation to address them. Regulatory tools that ameliorate the shock are the liquidity coverage ratio, the net-stable funding ratio, reserve requirements, and the leverage ratio. Professor Tsomocos pointed out that the minimum the regulator needs is a tool to manage capital, a tool to manage liquidity, and a tool to manage the scale of intermediation. The liquidity tools can be combined with capital tools (and vice versa), but not with each other.


The macroprudential dimension of financial stability.
Javier Mencía

Mr. Mencía explained that the aim of macroprudential policy, according to the ESRB, is to contribute to the stability of the financial system as a whole by ensuring a sustainable contribution of the financial sector to economic growth. There are two main dimensions of macroprudential policy, time and structure. Regarding the time dimension, macroprudential policy seeks to tackle the emergence of systemic risk over the credit cycle. The structural dimension refers to size, complexity and interconnectedness of banks. Then, he explained the progress of macroprudential policy focusing on the European Union (EU) since the GFC. A new EU capital requirements legislation (CRRII/CRD V) has been recently approved, with some significant enhancements to the macroprudential toolkit. He described different instruments available through European legislation, for instance, the CCyB, systemically important institutions, systemic risk buffer, flexibility package, higher risk weight on real estate loans and the higher minimum LGDs. Other additional instruments, which are being developed through outside the EU macroprudential toolkit, are the sectoral CCyB, sectoral limits to concentrations in sectors of economic activity, and borrower-based limits, potentially including LTV, LTI, DSTI, maturity, among others.

Microprudential and macroprudential policies do not operate on the same dimensions and have different goals. On the one hand, microprudential refers to idiosyncratic goals, limit the risk of failure of individual institutions, best justified in terms of depositor/investor protection. On the other hand, the macroprudential policies refer to systemic goals, and its main aim is to limit the cost of financial distress on the economy. Also, aggregate risk depends on the collective behavior of institutions. Finally, regarding the buffer usability and lessons from the Covid-19, the pandemic has been an exogenous shock for which the current macroprudential framework was not designed. This reduces significantly the capacity of macroprudential policy to mitigate the economic effects of the pandemic. The framework should be revised to make it more robust against all potential shocks.


Capital and liquidity regulation in Basel III.
Christian Castro

In this session, Mr. Castro explained the key elements of the Basel III framework, including a better definition and quality of capital, large exposures requirements, a minimum leverage ratio requirement, and macroprudential instruments, among others. Mr. Castro also developed on liquidity metrics. He explained motivation and economic foundations of the Liquidity Coverage ratio (LCR) and the Net Stable Funding Ratio (NSFR). Regarding the sectoral capital and liquidity buffers, Mr. Castro mentioned a number of factors that may motivate the possible use of sectoral tools by authorities. For example, the existence of sector specific components in credit development, the desynchronization between credit cycles of different sectors, the imbalances from excessive credit in some sectors which not necessarily lead to excessive credit in aggregate. Some examples of sectoral tools include the Sectoral CCyB, limits to sectoral concentration, sectoral risk weights and borrower-based tools such as limits to loan-to-value (LTV) and loan-to-income (LTI). These tools may be applied to prevent an excessive increase in risk-taking by banks and in the level of indebtedness of economic agents.

In relation to the Covid-19 pandemic, it was noted that the strengthened banks’ positions and the decisive measures adopted by policy-makers permitted to effectively soften the effect of the first wave from the Covid-19. The banking sector has contributed to avoid a ‘credit crunch’ that would have exacerbated the initial impact of the shock. Nevertheless, the ongoing economic downturn has substantially increased the risks for global financial stability. Though uncertainty has also increased significantly since the end of summer, some of the economic effects from the Covid-19 pandemic are likely to be longer than expected, or even permanent in some cases.


Global dimensions of macroprudential policy.
Matias Ossandon Busch

Mr. Ossandon explained that macroprudential cross-border spillovers operate through an interconnected financial system and started by explaining some key concepts. Macroprudential policies aim at mitigating systemic risks in financial markets. Mr. Ossandon defined the operationalization which refers to bank capital requirements, counterparty concentration limits, loan-to-value ratios and reserve requirements. Also, he explained the trilemma that emerges when pursuing the objectives of financial stability, independent financial and regulatory policy, and global financial integration. The trilemma affects our understanding of macroprudential effectiveness. Countries attempt to regulate banks operating in global markets, however, regulatory differences across countries opens the scope for global spillovers. The spillovers are explained by regulatory arbitrage, as regulatory changes in one jurisdiction may lead banks to capitalize on loopholes channeled via market integration. For instance, domestic CCyB changes may tighten interest margins and lead to a reallocation of lending abroad. Inward and outward spillovers reflect a global relocation of capital driven by macroprudential interventions. On the one hand, outward spillovers capture the effect of domestic policies on banks’ foreign activities. On the other hand, inward spillovers represent domestic effects of foreign or domestic policies channeled through financial integration.

Finally, Mr. Ossandon explained different spillover channels, including the bank lending, risk-taking, non-bank, trade, and financial contagion channels. From micro data evidence, Mr. Ossandon identified that macroprudential effectiveness is affected by foreign banks’ activities. In a nutshell, the methodological approaches can be divided into structural models, DSGE models, contagion and stress-test models, and empirical studies with granular data and microeconometric approaches. International initiatives are key to stock-take more comparable evidence, especially in relation to non-bank and supply-chain spillover channels.


Borrower-based macroprudential regulation.
Carmen Broto

Mrs. Broto at the outset established the rationales and objectives of borrower-based (BB) regulation. She emphasizes that the implementation of borrower-based measures since the crisis are meant to ensure sound lending standards over the cycle. Depending on respective national laws, different BB instruments, may be available.

Then, she moved to Caps on LTV and LSTI ratios. There she based her analysis on Galán and Lamas Working Paper published in 2019 “Beyond the LTV ratio: Macroprudential lessons from Spain”. The two main findings are: LTV ratios are distorted by optimistic appraisals, impairing risk identification and the existence of non-linearities in the relationship of lending standards to risks.
To analyze the interaction of BB measures and capital tools, she presented current results based on Galán (2020) on the asymmetry of the effects of these two kinds of macroprudential policies on GDP growth: positive on the left tail of the distribution and negative on the median. Tightening and loosening of macroprudential policies have different effects depending on the position in the financial cycle. Tightening in expansions has a larger impact in the mid-term, while loosening in busts has an immediate positive effect on reducing the downside risk of GDP. Further, benefits of tightening BB measures are rapidly observed and persistent, while those from tightening capital requirements present with delay. The opposite is found when loosening during busts.


Macroprudential policies and G20 financial regulatory reforms.
Costas Stephanau

Mr Stephanou provided some background information about the Financial Stability Board (FSB), which has been responsible for coordinating the development and implementation of the G20 financial reform agenda. The core reforms in that agenda are: making financial institutions more resilient; ending too-big-to-fail; making derivatives markets safer; and enhancing resilience of non-bank financial intermediation.

Mr Stephanou described the international policy work on macroprudential frameworks, noting that experience in many countries does not yet span a full financial cycle and that there is no international standard yet in this area. Lessons and empirical evidence remain tentative, while the wide range of institutional arrangements suggests a no “one-size-fits-all” approach. He described the main elements of a macroprudential policy framework and described FSB work to examine the implementation (particularly through country peer reviews) of macroprudential frameworks in FSB jurisdictions. He also described briefly the FSB’s ongoing evaluation of the effects of the G20’s too-big-to-fail reforms for banks.

Mr. Stephanou concluded by noting that a lot has already been achieved in making the global financial system more resilient but that full, timely and consistent implementation of the G20 reforms is needed to complete the job. He also identified new/emerging vulnerabilities for future macroprudential work relating to non-bank financial intermediation, financial innovation (including with respect to crypto-assets) and cyber risk; and climate-related financial risks.


The legislative development of the Basel Committee on Banking Supervision (BCBS).
Christian Castro

Mr. Castro, in the first section of his talk, introduced the steps to the completion of Basel III and the ongoing policy initiatives. Mr Castro mentioned the key features in the finalization of BIII are related to: credit risk, operational risk, output floor and the leverage ratio buffer surcharge for G-SIBs. After, he remarked the guiding principles of the BCBS: remembering the lessons of the past; continue to seek the views of all stakeholders for the global engagement and transparency; follow a disciplined focus on global financial stability issues and adopting a forward-looking approach to the Committee's current policy and supervisory work.

Finally, Mr Castro made a review about the preliminary lessons from the COVID-19 pandemic. These lessons were classified in broad implications, short – term challenges, and early lessons for the future. In the first category are: the Covid-19 has made the world stand still to some extent, but risks have not; policy-makers and banks will have to deal with significant inter-temporal trade-offs (i.e.: costs and benefits across time) that largely depend on the duration and severity of the pandemic. Further, the mix and type of policy actions should be able to adapt to the characteristics of the Covid-19 crisis and its phases. About the short – term challenges he mentioned to ensure that buffers remain usable when mostly needed and to avoid cliff-effects when unwinding support policy measure. It is important to identify and tackle channels of heightened risk transmission from the economy to the financial sector in a context of high uncertainty. The talk arrived to its end with the issues identified as early lessons of the pandemic for the future.


Tour de table and next steps.
LAC countries

In this session all LAC countries shared their findings and discussed their own experiences regarding Basel III implementation as well as the effects of macroprudential policies and the real economy.

Monday, November 16


Course opening


Session 1: An introduction to financial stability

Financial stability analysis and systemic risk
Speaker: Carlos Pérez, Banco de España
Chair: Serafín Martínez Jaramillo, CEMLA

  • Introduction to financial stability
  • Dimensions of financial stability metrics
  • Macro-financial linkages and financial cycles


Solvency analysis and profitability of bank entities
Speaker: Carlos Trucharte, Banco de España
Chair: Serafín Martínez Jaramillo, CEMLA

  • Financial stability metrics in the banking sector
  • Solvency and profitability as financial stability indicators
  • Excursus: Spanish experience during the COVID-19 crisis


Solvency analysis and profitability of non-bank financial institutions
Speaker: Irene Pablos, Banco de España
Chair: Matías Ossandon Busch, CEMLA

  • Monitoring financial stability metrics in the non-banking financial sector
  • Rating downgrades, investments policies and financial stability in fixed-income markets
  • Excursus: Spanish experience during the COVID-19 crisis


Tuesday, November 17


Session 2: Interconnectivity and stress testing

Interconnections between the different financial intermediaries
Speaker: Serafín Martínez Jaramillo, CEMLA
Chair: Patricia Stupariu, Banco de España

  • Brief introduction to financial networks
  • Contagion channels in financial networks
  • Quantification of systemic risk in banking networks


Stress testing
Speaker: Nadia Lavin, Banco de España
Chair: Matias Ossandon Busch, CEMLA

  • Introduction to macroprudential stress testing
  • Stress test methodologies and stress scenarios
  • Architecture of the Bank of Spain stress tests
  • Spanish experience during the COVID-19 crisis
  • Climate change and stress tests


Wednesday, 18 November


Session 3: Modeling financial stability in general equilibrium

A general equilibrium model for financial stability
Speaker: Profesor Dimitrios Tsomocos, University of Oxford
Chair: Salomón García, Banco de España


Calibration and results of the general equilibrium model
Speaker: Profesor Dimitrios Tsomocos, University of Oxford
Chair: Adrián Carro, Banco de España


Thursday, November 19


Session 4: Macroprudential policy: instrumentation and strategy

The macroprudential dimension of financial stability
Speaker: Javier Mencía, Banco de España
Chair: Matías Ossandon Busch, CEMLA

  • Macroprudential policy: definition, rationale, and policy tools
  • Macro- vs. Microprudential regulation: buffer usability and lessons from the COVID-19 crisis
  • Macroprudential vs. monetary policy: complementarities and interactions


Capital and liquidity regulation in Basel III
Speaker: Christian Castro, Banco de España
Chair: Carola Müller, CEMLA

  • Pre-Basel III limitations: procyclicality and institutional design
  • Capital and liquidity requirements in Basel III
  • A rationale for sectoral capital and liquidity buffers
  • Recent evidence on the effectiveness of countercyclical buffers


Global dimensions of macroprudential policy
Speaker: Matías Ossandon Busch, CEMLA
Chair: Jorge Galán, Banco de España

  • The interaction between domestic and global financial cycles
  • Macroprudential tools and the cross-border transmission of shocks
  • Global spillovers of macroprudential policies: channels and evidence


Borrower-based macroprudential regulation
Speaker: Carmen Broto, Banco de España
Chair: Carola Müller, CEMLA

  • Rationales and objectives of borrower-based regulation
  • Caps on Loan-to-Value and Debt-Service-to-Income ratios
  • The interaction of borrower based and capital tools
  • Excursus: The operationalization of borrower-based tools in Spain


Friday, November 20


Session 5: Governance and international policy agenda

Macroprudential policies and G20 financial regulatory reforms
Speaker: Costas Stephanou, Financial Stability Board 
Chair: Matías Ossandon Busch, CEMLA

  • International policy work on macroprudential frameworks
  • Implementation and evaluation of macroprudential frameworks


The legislative development of the Basel Committee on Banking Supervision (BCBS)
Speaker: Christian Castro, Banco de España
Chair: Carola Müller, CEMLA

  • The completion of Basel III and ongoing policy initiatives
  • The BCBS agenda for the implementation of post-crisis reforms
  • Preliminary lessons from the COVID-19 pandemic


Tour de table and next steps
Chair: Serafín Martínez Jaramillo, CEMLA
LAC countries

  • Basel III implementation: advances and evaluation
  • Interactions between macroprudential and monetary policy
  • Macroprudential policies and the real economy: effects and unintended consequences




Carlos Pérez
Banco de España

Currently heads the Financial Stability Analysis Division of Banco de de España (BdE). His responsibilities include work in the coordination and preparation of the biannual BdE Financial Stability Report, development and execution of the BdE top-down stress test, and other tasks in the analysis of financial risks, with special emphasis on the banking sector, and regulatory policy. He has previously held at BdE the positions of head of the stress test unit and senior economist. His publications are focused on the analysis of banking competition and risk, including studies of bank deposit markets, the impact of mergers on credit markets, default behaviour and the conduct of stress tests. He holds a PhD in Economics from Columbia University.


Carlos Trucharte
Banco de España

He currently works as an advisor in the General Directorate of Financial Stability, Regulation and Resolution of the Bank of Spain, fundamentally dedicated to the preparation of the Financial Stability Report, periodic monitoring notes of the Spanish banking system, data quality analysis reported by entities, regulatory development of macro-prudential tools, and another series of specific reports on the Spanish financial system. His publications are oriented to the banking system and its potential impact on Financial Stability. He holds a PhD in Economics from Columbia University. He holds a Master's (MSc.) in Operational Research from the London School of Economics (LSE), and also in Economics and Finance from CEMFI.


AvatarIrene Pablos
Banco de España

Irene Pablos Nuevo is an economist at Banco de España. Her main working and research areas include: empirical banking, stress testing methodologies and financial markets. She studied Economics (licenciatura at Complutense University of Madrid) and a Master's Degree in Banking and Finance (AFI). She held positions as Research Analyst at the European Central Bank among other institutions.


AvatarDr. Serafín Martínez Jaramillo
Advisor, CEMLA

Serafin Martinez-Jaramillo is a senior financial researcher at the Financial Stability General Directorate at Banco de México and currently he is an adviser at the CEMLA. His research interests include: financial stability, systemic risk, financial networks, bankruptcy prediction, genetic programming, multiplex networks and machine learning. Serafin has published book chapters, encyclopedia entries and papers in several journals like IEEE Transactions on Evolutionary Computation, Journal of Financial Stability, Neurocomputing, Journal of Economic Dynamics and Control, Computational Management Science, Journal of Network Theory in Finance and some more. Additionally, he has co-edited two books and two special issues at the Journal of Financial Stability. Serafin holds a PhD in Computational Finance from the University of Essex, UK and he is member of the editorial board of the Journal of Financial Stability, the Journal of Network Theory in Finance and the Latin American Journal of Central Banking.


Nadia Lavin
Banco de España

She joined the Bank of Spain in 2014, where is responsible for the Stress Test Unit, leading the execution of the FLESB stress tests. Additionally, it performs quantitative analysis for those issues that are especially relevant to financial stability and actively participates in international forums.

She began his career at KPMG in 2008, where she worked in the Department of Financial Risk Management (FRM), focusing her activities on advising on credit risk to financial entities nationally and internationally. Her participation in projects for the adaptation of Basel II stands out (construction of scoring / rating models, construction and recalibration of PD, LGD and EAD models, validation, training), analysis of functionalities prior to the implementation of new processes in banking entities, analysis of provisions and capital and definition of databases and Data Quality, among others.


Dimitrios Tsomocos
University of Oxford

Professor Dimitrios P Tsomocos is a Professor of Financial Economics at Saïd Business School and a Fellow in Management at St Edmund Hall, University of Oxford.

A mathematical economist by trade, his main areas of expertise include:

  • Central Banking
  • Banking and regulation
  • Incomplete asset markets
  • Systemic risk
  • Financial instability
  • Issues of new financial architecture

Dimitrios' research has had a substantial impact on economic policy around the world. In particular, he analyses issues of contagion, financial fragility, interbank linkages and the impact of the Basel Accord and financial regulation in the macroeconomy, using a General Equilibrium model with incomplete asset markets, money and endogenous default. He is working towards designing a new paradigm of monetary policy, financial stability analysis and macroprudential regulation.

He co-developed the Goodhart – Tsomocos model of financial fragility in 2003 while working at the Bank of England. The impact has been significant and more than ten central banks have calibrated the model, including the Bank of Bulgaria, Bank of Colombia, Bank of England and the Bank of Korea. Nowadays, he is collaborating with researchers from the ECB, the Central Bank of the Russian Federation and the Bank of Chile to implement an updated version of the model, together with professor Udara Peiris. In 2011, Dimitrios provided testimony to House of Lords for the Economic and Financial Affairs and International Trade Sub Committee's report, 'The future of economic governance in the EU'.

Dimitrios has been an economic advisor to one of the main political parties in Greece and regularly provides commentary on the state of the Greek economy to local and international media. He has worked with central banks in countries including England, Bulgaria, Colombia, Greece, Korea and Norway to implement the Goodhart – Dimitrios model and advise them on issues of financial stability. He also serves as a Senior Research Associate at the Financial Markets Group at the London School of Economics.

Prior to joining the Saïd Business School in 2002, Dimitrios was an economist at the Bank of England. He holds a BA, MA, M.Phil., and a PhD from Yale University.


AvatarJavier Mencía
Head of the Macroprudential Policy Divison, Banco de España

Javier Mencía joined the Bank of Spain in 2006 in the Department of Financial Stability, within a program for hiring PhD in Economics. During the first years of his career, he developed research in various areas related to Financial Stability. Since 2015, he is the head of the Macroprudential Policy Division of the same department, and is in charge of coordinating the analyzes that support the decisions of the Bank of Spain on the macroprudential instruments at its disposal. He has regularly participated in various European and international working groups and committees.


Christian Castro
Banco de España  


AvatarMatías Ossandon Busch

Matias Ossandon Busch is Senior Economist at the Center for Latin American Monetary Studies (CEMLA) and Research Affiliate at the Halle Institute for Economic Research (IWH). He holds a PhD in Economics from the University of Magdeburg and Master Degrees from the University of Tubingen and the Adolfo Ibañez University. His fields of interest are empirical international banking, macro-financial linkages, and international finance.


Carmen Broto
Banco de España


Constantinos Stephanou
Financial Stability Analysis, FSB Secretariat

Constantinos (Costas) Stephanou is the Head of Financial Stability Analysis in the FSB Secretariat. In that capacity, he oversees the work on vulnerabilities assessments, implementation monitoring and evaluations of the effects of reforms. Mr. Stephanou led the development of the FSB framework for monitoring the implementation of G20 financial reforms and helped develop the FSB framework for evaluating the effects of those reforms. He coordinates the preparation of the annual FSB report to the G20 on the implementation and effects of reforms; supports evaluations; and participates in FSB thematic and country peer reviews covering areas such as macroprudential policy frameworks, resolution regimes, deposit insurance and non-bank financial intermediation.

Mr. Stephanou previously worked as a Senior Financial Economist at the World Bank, where he participated in financial sector assessments and consulted with national authorities on banking regulation and supervision, risk management, access to finance, free trade agreements and financial services, and competition policy; he is also the author of a number of papers on these topics. Prior to joining the World Bank, he worked as a risk management consultant for Oliver Wyman and as Treasury Risk Manager and Head of Planning for an HSBC affiliate in Greece. Mr. Stephanou holds degrees in Economics and Public Policy from the universities of Cambridge and Harvard respectively.


- Financial Stability Board: https://www.fsb.org/

- Office of Financial Research: https://www.financialresearch.gov/

- Financial Stability Institute: https://www.bis.org/fsi/index.htm

- Global Financial Stability Reports (GFRS):  https://www.imf.org/en/Publications/GFSR 

- Banco de España: https://www.bde.es/bde/en/areas/estabilidad/  (website related to financial stability topics)

- Dr. Dimitrios P Tsomocos research: http://www.tsomocos.org/home.html