The banking storm of the last few weeks has made the ghost of a new financial crisis return to hover over markets world. In the memory of all those who lived it still weighs the panic that caused the bankruptcy of Lehman Brothers in September 2008 and the devastating effects that until 2014 had the successive waves of the tsunami of the Great Financial Crisis and the great recession. the later remodeling overall of the regulation, supervision and resolution of the banks -which has led the Spanish sector to have 45,886 million euros and 27% more capital to absorb losses that then- is facing its first great test by fire these days.
Both Spanish authorities as some of the main bankers have come out in a rush these days to ensure that the situation of the country’s banks they have nothing to do with which they have caused the fall of the American Silicon Valley Bank and the swiss Swiss credit or now makes Deutsche Bank reel. But are they right or are we attending a repetition of “Spain perhaps has the stronger financial system of the international community” that President Zapatero proclaimed in that September of 2008 in New York?
Both the data and the changes in the institutional architecture of bank control point to big differences. “Financial crises are known how they start but not how they end, because the loss of confidence of investors have unforeseeable ramifications. But if we go to the fundamentals, the situation has no nothing to do with the 2008 and the Spanish sector catches us in a much stronger situation. can never be ruled out scaresbut today they seem very, very unlikely“, qualifies one of the great bankers.
Solvents and liquids
The data does point to a profound transformation of Spanish banking in these almost 15 years. The sector, thus, counted at the end of September with 214,117 million of euros of Tier1 (higher quality capital plus convertible bonds), compared to 168,231 million at the close of 2008. At the same time, it has increased its assets from 3.28 to 4 trillion of euros, but has reduced the assets measured by risk that they suppose to cause losses to the entities of two to 1.5 trillion. This has led to the weight of capital on said risk-weighted assets increasing from 8,1% al 14,26%.
Banks are therefore bigger but they have less risk and one older piggy bank to bear possible losses. Also have more liquidity to face deposit outflows such as those suffered by failed banks. Thus, its liquidity coverage ratio (LCR, the result of dividing total liquid assets by short-term payment obligations) amounts to 199%, twice the amount required by the authorities, with a mattress of 795,806 million euros to meet obligations of 398,934 million. It is not comparable because in 2008 there was not even a requirement to have it constituted.
The bursting of the real estate bubble has also caused a huge improvement in its most basic liquidity ratio, which measures the weight of the credits on deposits. has gone down to 100.8% from 195% of 2008 (credits doubled deposits, with which the entities needed to finance themselves to a greater extent in the volatile capital markets). The delinquencyon the other hand, is similar to then (3.48% in January compared to 3.37%), but it is light years away from the all-time high of 13.61% reached in 2013, a level that supervisors consider highly unlikely that it no longer reach, but approach. The public debt portfolios they are around 13% of the assets on average and are mostly held to maturity (77% of the total), while guaranteed deposits -up to 100,000 euros per entity and client- amount to an average of around 66%.
More and better control
Why this remarkable improvement? Antonio Carrascosaformer director of the Fund for Orderly Bank Restructuring (FROB) Spanish and former director of the Single Resolution Board (JUR) of banks is clear: “The European model has good health: the supervision only one is working fine and the resolution unique, too. He Single Resolution Fund will end next year with an endowment of 80,000 million euros and, when Italy signs it, the MEAD can give you a similar amount in case of need. It would remain to create the Deposit Guarantee Fund common, clarify the framework for resolve medium entities to clarify when there is or is not public interest in its resolution, and to standardize some elements of the national insolvency laws. But the whole institutional scheme is much stronger than in 2008“.
After the debacle of that year, thus, the international architecture of control of the banks experienced a authentic revolution, promoted by the G-20. hardened the accounting regulations (from Basel II to Basel III), as well as the principles for the supervision of entities and the resolution of banks with problems. In the European Union, the supervision of the large banks passed from the countries to the European Central Bank (ECB), and the resolution was assumed by the new Single Resolution Board. In addition, regulation was strengthened with the creation of the European Banking Authority (EBA) and the European Systemic Risk Board to monitor global threats to financial stability.
Isolated cases
“In the European Union, the risk of messy national solutions to troubled banks is less than in 2008Because we have the European Commission, the ECB and the SRB and a law that covers the entire process and provides a lot of security. Is important That keep outline resolution that arose from the 2008 crisis, because otherwise banking crises may be accompanied by sovereign crises (of the state finances of the countries given the risk that they must bail out their entities)”, says Carrascosa, current external adviser to the International Monetary Fund (FMI) for technical assistance on the financial system of several countries.
The question that may arise is how is it possible, if everything has improved so much, that banks have fallen again. “In the SVB, the authorities were wrong by taking the bank to liquidation instead of resolution for not being aware of the risk of contagion to the financial system. When it went into liquidation, the deposit guarantee fund was activated, but only 5% of the deposits were guaranteed. And at Credit Suisse, resolution framework not applied, but just some of the powers it allows. In both cases, it should have started acting much earlier to prevent entities from reaching that situation. But I don’t think the contagion will spread any further, because although could have been done betterthe main problem has been solved”, he points out.