BBVA in 2012

fiscal situation in the United States and Japan, together with greater vulnerability in some othercountries with a lower than expected rate of growth. Between May and the end of July therewas a further tightening of financial conditions in the Euro Area, above all in Spain and Italy. Thisled to tougher funding conditions for both public and private sectors, and in particular for creditinstitutions.Although tensions in financial markets in the Euro Area have eased since the end of July, thesituation has not fully returned to normal and the level of uncertainty remains high. In thisenvironment of extreme pressure in both the wholesale and retail businesses, BBVA has continuedwith its sound structural liquidity position, supported by the strengths and proactive managementof its balance sheet. The Bank has carried out the following actions:• Ongoing maintenance of a sufficient buffer of liquid assets, fully available to cover the Entity’smain short-term commitments, in line with regulatory proposals.• Significant improvement in the self-funding ratio of commercial activity.• Diversification of the different sources of funding available in terms of instruments, markets andmaturities.• Broad base of highly stable on-balance-sheet deposits and funds.• Optimization of the generation of collateral available for dealing with situations of markettension.Despite the context outlined above, in 2012 BBVA has taken advantage of all the windows ofopportunity and issued wholesale senior debt and mortgage-covered or public-covered bonds,with a good uptake and a spread that was always below the credit default swap (CDS) level. Overthe year as a whole issuance amounted to more than €14,000m. It is worth noting that BBVA hasa good medium and long-term funding structure with good product diversification (senior debt,subordinated debt, covered bonds, etc.). In this way, the Bank has also been able to minimize thelevel of use of short-term funding and strengthen its funding structure.BBVA Group has continued to strengthen its medium-term liquidity strategy, based on theprinciples that govern liquidity management in the Bank:• Decentralized management.• Independence of subsidiaries.• Combination of self-funding of investment activity by business areas with policies of selectiveissuance to ensure diversified funding. The aim of all this is to preserve solvency, sustainedgrowth and recurrent earnings.The Finance Division, through the Balance-Sheet Management unit, manages liquidity andfunding in BBVA Group, according to the policies and limits set by the Executive Committee atthe proposal of the GRM corporate area. This area carries out independent measurement andcontrol in each entity according to a corporate scheme that periodically includes stress analysesand establishes contingency plans. The Balance-Sheet Management unit plans and executes thefunding of the structural long-term gap in each balance sheet, and proposes to the ALCO theactions to adopt with respect to this matter. Once the proposals are agreed by ALCO, the Balance-Sheet Management unit guarantees the coordination and standardization of the processes in allthe geographical areas.114 Risk management