Mr. Mario Nava:

I can provide a clear example. With Basel III we introduced a capital buffer which is called, "counter-cyclical capital buffer". That buffer increases the capital requirements when an economy is in good times. Basel III and the CRR, introduced this clear mechanism which made the capital requirement higher in good times. This was done in recognition of what the Deputy said, namely, that most of the excess leverage and most of the errors may actually happen in good times because in good times the economy is booming and so banks tended to lend more. It is interesting to note the ESRB report which stated that in spite of the fact that we are clearly now not in a boom period, all countries have set their counter-cyclical buffer at zero for the time being but in all countries there is the possibility that if the economy booms again, a country will move its counter-cyclical buffer. Currently, only one country has moved its buffer out from zero.

The Deputy makes the point that most of the banking errors are made in the good times because of the excess of lending. That point has been recognised very much, both at the global level in Basel and in our legislation in the CRDCRR, by the introduction of this counter-cyclical capital buffer which allows more capital requirements in the good times.