Spanish Financial System: Main Features Amaya Altuzarra, Jesus Ferreiro, Catalina Gálvez, Carmen Gómez, Ana González, Patricia Peinado, Carlos Rodríguez, Felipe Serrano Department of Applied Economics V University of the Basque Country 1
Financial Institutions Assets Balance Sheet Structure (2008) Spanish financial system is mainly dominated by credit institutions, with other institutions playing a minor role. Banks own most of the other financial institutions, thus representing around 90% of the Spanish financial system. 50-55% banking system was formed before the crisis by regionalprovincial savings and loans banks 2
Main features of the evolution of the Spanish financial system since the 1970s: Concentration: Savings banks: 1982 (83), 2000 (48), 2012(9) Banks: 2012 (5) Low weight of foreign banks Change to a model or universal banking, with all the institutions (banks, savings banks, credit cooperatives) competing among them Savings banks since the nineties lost their local (provincial-regional) basis expanding through the whole Spanish territory (in many cases, the strategy involved the purchase of commercial banks) Different ways of expansion of banking institutions: Banks: international expansion (Santander and BBVA) in Europe, Latin America and USA Savings banks: opening new branches in other provinces and regions; mergers with other savings banks of the same region, purchase of commercial banks Huge and rapid and recent financial depth process 3 episodes of crises 3
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The current situation of the Spanish banking-financial system is characterized by a situation of crisis. This is not the first (neither the most severe) banking crisis: Crisis 1978-1985, Crisis 1993 The 1978-1985 crisis affected 58 out of the 110 banks operating in 1977. These 58 banks amounted 27% of the banking system In 1993, Banesto was intervened by the Bank of Spain. Banesto was the 4 th bank (8-9% of the banking system) The cost of the 1978-1985 banking system was 10,100 million euros (6% GDP 1985 ), and the cost of the Banesto reorganization amounted 4,700 million euros (1.2% GDP 1993 ) The 1978-1985 is one of the main reasons of the severity of the Spanish economic crisis in that period 5
The banking crisis of the seventies-eighties, in opposition to the current one: Is mainly explained by the lack of a (efficient) policy of financial supervision, and an inefficient management of the banking institutions joined to an excessive public interventionism It was concentrated in the sub-sector of the banks, and not at the sub-sector of saving and loans institutions The trigger was the real (industrial) crisis that affected most to those banks with stronger and closer links with the industrial (manufacturing) companies Problematic (toxic) assets were concentrated in the credit given to non-financial companies (manufacturing), whilst today they are concentrated in the construction sector 6
The current strategy to solve the banking system is in some respects similar to that followed in the seventieseighties: Public intervention nationalization of some banks Massive use of public resources Concentration of institutions It differs: problematic assets were maintained in the balance sheet of banks (though most commercial banks sold their portfolios of industrial participations); now it will be created a bad bank that will concentrate credits given to real estate companies (building promoters) Banks are nor purchasing the saving banks (more precisely: the banks where saving banks moved thier banking business) 7
The financiarization process of the Spanish economy (the financial depth) is a very recent process, that accelerated dramatically in the past decade 350 Assets of credit institutions (% GDP) 300 250 200 150 100 50 0 Total Assets Securities other than shares Unsectorised assets. Cash Loans Shares and other equity Unsectorized assets. Other 8
180 Loans of the credit institutions (% Spanish GDP) 160 140 120 100 80 60 40 20 0 Loans to domestic credit system Loans to domestic general government Loans to domestic other resident sector Loans to the rest of the world 9
The credit expansion was fuelled by an environment characterized by low (nominal and real) interest rates that stimulated the credit demand (households: purchase of dwellings; non-financial companies: investments) and that reduced the cost of the external funding of Spanish banks, and by an excess of global liquidity that allowed a high external borrowing by banks Though banking system maintained a traditional banking business (based on loans to private-public clients), the expansion of the balance sheet made bank less dependant of the traditional source of funding-liabilities (deposits) and highly dependant of other source of funding (external-foreign funding) This explains the problems of the Spanish financial system after 2008: excessive risk concentrated in the housing bubble + excessive (foreign) leveraging + closure of the (private) interbanking market 10
Composition of the liabilities of the credit institutions (percentage of total liabilities) 100 90 80 70 60 50 40 30 20 10 0 Total Deposits Securities other than shares Equity, adjustments and impairment allowances Welfare fund liabilities Accrual and sundry accounts 11
1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 200 180 160 140 120 100 80 60 40 20 0 Deposits (percentage of GDP) Deposits domestic agents Deposits rest of the world 12
1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 Deposits (percentage of total liabilities) 100 90 80 70 60 50 40 30 20 10 0 Deposits domestic agents Deposits rest of the world 13
1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 50 Assets and deposits of the rest of the world in the Spanish credit institutions (% Spanish GDP) 40 30 20 10 0-10 Assets Deposits Gap 14
Jan-80 Jan-81 Jan-82 Jan-83 Jan-84 Jan-85 Jan-86 Jan-87 Jan-88 Jan-89 Jan-90 Jan-91 Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 450 Outstanding liabilities (% Spanish GDP) 400 350 300 250 200 150 100 50 0 Non-financial corporations General government Rest of the World Financial institutions Households and non-profit institutions 15
This process was fuelled by a set of inter-related elements: The lack of an effective counter-cyclical economic (fiscal) policy that curbed the high economic growth The high demand of credit by non-financial private agents (reasons: high economic growth, high profitability rates, strong jobs creation, constitution of new households, population growth fuelled by migration inflows, tax cuts, rising dwelling prices...) The absence of an efficient practice of financial supervision by the Bank of Spain that avoided/curbed an excessive risk exposure The expansion and banking process of the sub-sector of saving and loans institutions: the institutions with the higher exposure to the risk of the real estate related loans and to the crisis of the non-financial companies 16