2023-04-29 06:30:25
Last March 24, the press was talking about another Black Friday and the fear was growing of reviving the 2008 financial year, when the bankruptcy of Lehman Brothers caused a tsunami that could have swept the international financial system, and with this, developed economies. At the beginning of March, the American Silicon Valley Bank (SVB) collapsed in what appeared to be an isolated case, but a week later the mistrust overturned an international private banking institution such as Credit Suisse. The eyes of the market, and of speculators, were fixed on the next victim: the German giant Deutsche Bank, which collapsed in the stock market and was about to trigger an international financial panic.
Now, just a month later, calm has returned. There is consensus to consider that the crisis has been a sum of isolated events. “They have been cases with their own idiosyncrasy”, points out Luigi Motti, senior director of S&P Global. An opinion shared by the main players in the sector, such as the president of Santander, Ana Botín, who speaks of “episodes of volatility specific to specific entities”.
And if there is a consensus that the crisis has slowed down, there is also some in the recipe that Europe must apply to try to prevent new cases from occurring or at least to be able to stop them, if they happen, with the minimum possible damages: complete the bank union.
The Dombrovskis plan
For some time, the governor of the Bank of Spain, Pablo Hernández de Cos, has been calling for “the culmination of the banking union, with the creation of a fully mutualized European deposit guarantee fund”, a proposal that has been on the table for eight years of European leaders. Botín – “it would contribute to increasing confidence” – and the president of the banking association (AEB), Alejandra Kindelán – “the next Spanish presidency of the EU can be a good opportunity to complete the banking union” have also spoken in this line »-.
It cannot be said that on this occasion Europe did not try to move quickly. Valdis Dombrovskis, economic vice-president of the European Commission, has recently presented his proposal to reform the banking crisis management framework, the star measure of which is precisely a European deposit guarantee fund. “The recent bankruptcies are a reminder of why we need a system that works for all banks, regardless of their size,” he said.
Given that Europe is moving in the direction that the financial actors claim, that is to say, that there does not seem to be a major technical obstacle, why has the plan been going around the countries for years? The problem, as almost always, is political: “Here the most important thing is to decide that we will have a single system”, explains a senior official of the European Commission.
A European guarantee fund seeks to offer more confidence to savers by establishing, as Dombrovskis pointed out, “the coverage level of 100,000 euros per depositor and bank”, precisely the level at which the Spanish deposit guarantee fund (FGD) is . The problem, as the experts also point out, is that protection would be mutualised. If you look at it from the positive side, as Kindelán points out, “every entity, regardless of its nationality, will be able to be assessed for its solvency and its strength”. But some countries see this as a threat. Germany, according to European sources, is not interested in this mutualization that equates the protection of first-tier banks with those of countries that are in the second tier. They understand in the German country that this formula removes incentives to invest or keep savings in their banks and raises the incentives to deposit savings in entities in other countries.
In addition, of course, there are technical difficulties. Back to Germany, the country, which has a protection of 100,000 euros per depositor, uses private systems to, in practice, guarantee the entirety of the savings, something it does not seem ready to give up for now. France, for its part, does not endow its FGD every year, as is done in Spain, although there is a commitment from the Government to cover this amount in case of need.
The other part of the banking union that, despite being much more advanced, is not yet resolved, is the one that refers to the resolution systems. It’s a glaring problem after seeing how the Credit Suisse crisis was resolved. The Swiss authorities, in their attempt to resolve the crisis as quickly as possible, “did a bit of what they wanted”, in the words of a European official. This resulted in guaranteeing protection not only to savers, but also to shareholders, who are the ones who have to bear the entity’s losses in the first place. This action, which served to put a stop to a fire that was spreading rapidly, has put on the table the need to regulate clearly to avoid, as Dombrovskis pointed out, that the national authorities use “public money to do facing an imminent bankruptcy, instead of using the internal resources of the banks and the safety nets financed by the same sector».
One of the weapons that these resolution mechanisms have to stop serious liquidity problems is the so-called bazooka of the Single Resolution Fund (FUR), which, as the Deputy Governor of the Bank of Spain, Margarita Delgado, “will count this year with 80,000 million euros’ and with the support of the MEDE, which European sources estimate at 80,000 million more. A total of 160,000 million that may seem like a formidable weapon, but pales in comparison when you consider that Switzerland had to approve a bailout close to 110,000 million just to save Credit Suisse.
A looser regulation
And while these aspects are being resolved, in the sector, especially among the regulators, there is a growing fear that, with calm waters, voices will be heard again that demand a more relaxed regulation in order to compete with American entities, especially with which are considered small and medium-sized there, and which are generally defined as such when they are below $250 billion in assets. Kindelán pointed out at the AEB assembly that regulation in Europe applies to all entities, unlike what happens in the United States. As a member of one of the big four explains, “here a bank like Sabadell is hyper-supervised and, on the other hand, in the United States a similar one is barely monitored”.
Where there is also coincidence is to point out that right now, fundamentally, the situation in the sector is “much more solid than 15 years ago”, explains Botín. The bank points out that the sector has a mattress of own funds of more than 60,000 million above the minimum requirements and in general it is highlighted that, if the solvency positions before Lehman were 6%, now they are between 12% and 15 %. In addition, delinquencies are not rising despite continued rate hikes, although, for example, Víctor Alvargonzález, of Nextep Finance, warns that in the United States “the bills already pay more than 5%; if the Federal Reserve continues to raise rates, they will empty the deposits of the small banks.”
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