Speaking at the ’30th Financial Meeting’ by Deloitte and ABC, Kindelán presented some data from the status report of the ‘roadmap’ signed a year ago by the three banking associations (AEB, CECA, and Unacc).

The Valencian Institute of Economic Research (IVIE), led by Professor Joaquín Maudos, then created a situation map and identified 243 municipalities without a financial services access point.

One year after the commitment was made, following the launch of public tenders (with elections in between), the signing of collaboration agreements, and the willingness of the entities… 93% of these municipalities now have—or have already tendered for—such an access point, through ATMs, mobile bank branches, offices, financial agents, and post offices.

Regarding the improvement of personalized attention for the elderly, she emphasized that the sector combines specific attention for certain groups with digital transformation, thereby redoubling efforts in digital literacy and financial education, “so that anyone who wishes can participate and no one is left behind.”

Among the improvements in in-person service for the elderly, she highlighted the increase in the number of offices with extended cash service from 9 AM to 2 PM, reaching 82.2%. In the first half of the year, 5.6 million people received preferential attention, and over 2 million by phone.

“We are committed to the country’s challenges, such as rural depopulation and the aging population,” she affirmed, convinced that “the banking sector fulfills its commitments” and that “public-private collaboration is fundamental.”

In this regard, she emphasized that collaboration agreements with entities and associations, such as the Platform for the Elderly and Pensioners (PMP), SECOT, Fundación Telefónica, or Somos Digital, among others, are also essential.

La entrada “200,000 people will have access to financial services in rural areas in just over a year.” se publicó primero en Asociación Española de Banca.

Can we believe that the banking turbulence generated by the Silicon Valley Bank and Crédit Suisse crises has passed, or is it better to be cautious?

The financial conditions of the economy have changed radically in a very short time. Interest rates have risen sharply. What we must be sure of in Spain is that we have a banking sector well-prepared to handle this change. We have a very commercial banking model, which has nothing to do with banks like Silicon Valley or the problems at Crédit Suisse, which had faced profitability difficulties in recent years. Spanish banking is showing strength and profitability, with very solid balance sheets and enormous diversification. Silicon Valley and some others failed because of their business model. We are well-prepared.

Could phenomena like Silicon Valley Bank be repeated?

The market is very large. These are international phenomena. They came from outside. We start from the foundation of a solid, healthy, and profitable financial sector.

The sector has been very combative regarding the bank tax, yet first-quarter results have been very good. How do you justify that contradiction?

We are coming from a decade of negative interest rates. Now, the change in conditions is normalizing rates and also profitability levels. One must understand the big figures, the 20 billion euros in profit in 2022. I understand they draw attention because it is a very large figure at a time of inflation and economic slowdown. We have banks here that are among the top in the world and generate a very significant part of their profits abroad. In the case of Santander, it is 85%. BBVA said 65%/70%. In the end, the total is 42%, which must be excluded. Of the rest… Half of the profit generated is retained to build reserves and continue lending to families and businesses. The other half of the profit is distributed as dividends to 5.6 million shareholders, many of whom are small retail investors who supplement their income with that dividend. Spanish banking is the sector that pays the most taxes in Europe. 51% of the profits of Spanish banks go to taxes. If we include the new levy, we exceed 60%. When the proposal for that tax arose, we said it was arbitrary and stigmatized the sector. What the supervisor tells us is that the rate hike can help margins in the short term, which is what is happening now, but insists that in a context of uncertainty, there are also negative effects for banks from that rate hike that may be seen now, such as reduced activity. We are already seeing that credit is slowing down and there is more delinquency, although it is at record lows, which means provisions must be made that reduce results. The regulator asks us for prudence. In this context, do we think a bank tax is a good idea? Well, no.

What can the banking sector do to improve financing for young people’s access to housing?

In Spain, we have a mortgage market that works very well, so well that the homeownership rate is 75%, and that is due to the dynamism of the mortgage market. Regarding access for young people, I believe formulas are being proposed that we find appropriate. What we have measured is that a significant portion of young people between 25 and 35 can afford a mortgage payment but cannot afford the down payment.

Of course, now banks only provide 80% of the loan and not the 100% or 120% seen before the Great Recession.

That is in the past. It was an era of excess. Now, 80% is the norm. Covering that 20% with savings is difficult for young people. Only 3% of young people in that age group can afford that down payment, whereas more than 40% of them can afford the monthly installment. How to address this situation? We believe that the formulas being proposed, such as a guarantee, are the way to go.

Will we see more mergers in Spain in the near future?

We have had a very strong consolidation process over the last decade. The sector has been reconfigured, and we now have a level of concentration that I would say is average when looking at international comparisons. We have a very good level of competition and efficient entities. In general, I do not think more concentration is necessary, although this is a decision for each individual entity.

The closure of branches is a constant trickle every month, and financial exclusion is gaining ground. Is this policy going to stop, or will digitalization lead us to a world with almost no physical contact with our financial institution?

The elderly are the ones who most request that physical attention. With COVID, the digitalization process accelerated. But as we emerged from the pandemic, the sector realized that not the entire population could keep up with that pace. We have a public commitment to take a series of measures, such as opening teller service hours from nine to two in the afternoon. We have 6.5 million people over 65 who have accessed our extended teller hours. We are committed to assisting them by phone through a person and not a robot; 2.5 million calls have already been handled. We have conducted an external survey that tells us that the satisfaction of those over 65 with these measures is between 70% and 75%. We must continue to improve.

Banking is a great barometer of the country’s activity. What is your perception of the progress of the Spanish economy?

It is surprising us positively. A few months ago, we all saw a greater slowdown than what has occurred now. I think it is very important to see that employment is holding up well and that inflation has fallen more in Spain than in other countries. I also consider it important to differentiate the current situation from the one we experienced in 2012. They have nothing to do with each other. Back then we had a recession, employment had collapsed, the debt levels of families and companies were much higher, and we had a real estate crisis that it seems we will not have now.

Germany has entered a recession. Will there be a contagion effect in Spain?

They are very different economies. The Spanish economy has a greater weight in services than Germany, where there is a greater weight in industry. Tourism is also doing very well, as is the export industry. For now, what we are seeing is a slowdown. Germany is the engine of Europe, but it has a very different economic structure from ours and suffers from the war more than we do.

How much further does the European Central Bank (ECB) have to go with interest rate hikes?

Our perception is that inflation remains high and the signals the ECB is sending us are that it will continue to raise rates. We are going to see a few more hikes.

Major Spanish banks still do not remunerate savers’ deposits, unlike their European counterparts. When will this policy change?

As an association, we cannot speak about commercial practices, so I can say little on this subject. We come from a world of excess liquidity. Spanish entities are the ones returning the most liquidity to the ECB at this time. Furthermore, there is enormous competition in the Spanish banking system. Now, it is true that we are in a transition and, as conditions change, entities will make decisions.

Don’t you think it is reasonable, now that income is rising due to the rate hike, to compensate the most conservative clients for having their money in the bank after so many years without receiving anything?

I cannot speak about that. Those are commercial practices.

Housing seems to be heading toward a period of slowing prices and transactions. Is there a danger for financial entities?

Solvency levels are very high. And the delinquency rate is at its lowest since 2008. What we must be aware of is that we are at a time when the central bank’s objective is to fight inflation. It is everyone’s fight, because inflation is a tax on everyone and, above all, on the most vulnerable classes. The transmission channel for the rate hike is banking. The goal of monetary policy is to cool the economy to lower price pressure. There is no problem with credit supply; rather, demand is adjusting to the rate hike.

Interview conducted by Jordi Cuenca

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La entrada “In Spain, we have a good level of banking competition” se publicó primero en Asociación Española de Banca.

Russia’s invasion of Ukraine, energy constraints and disruptions to supply chains have driven a sharp rise in inflation, which has become persistent.

Central banks have responded with a rapid and significant increase in interest rates. This return to normality after years of zero and even negative rates has helped improve profitability, but it has also created new challenges, as has become evident in recent weeks with certain institutions in the United States and Europe.

These episodes involving specific institutions with specific problems are a good opportunity to focus on and underscore the strength of the Spanish banking sector.

AEB member institutions are facing the new monetary and financial environment with a sound and sustainable business model. A diversified and profitable retail commercial banking sector for which 2022 was a year of healthy growth. The increase in balance sheets during the year was driven by growth in their core activity: customer lending and deposits.

In our banks, lending accounts for 58% of total assets, above the euro area banking systems’ average of 49%. At year-end, customer lending reached a record €1.7 trillion for AEB banks. This figure reflects the sector’s ability to support millions of families and businesses in developing their projects to generate wealth and employment. Supporting investment is contributing to the progress of the economy and society.

Diversification is one of the features that characterise our institutions’ funding sources. Customer deposits—largely the result of household savings—account for 58% of liabilities, and their aggregate volume reached €1.7 trillion at the end of 2022.

Over the past year, Spanish banks have maintained profitability above the euro area average, also characterised by the high recurrence of income from their core activity, focused on retail commercial banking and less exposed than other business models to wholesale market volatility.

In particular, it was the increase in net interest income that explains the improved results achieved in 2022.

Profitability is the best defence against uncertainty and, in this regard, AEB banks’ 2022 results—€19.524 billion—are good news for the sector and, I dare say, also for the country. Profitability makes it possible to strengthen capital, continue granting credit to generate more investment, more employment, more consumption and more growth. It also makes it possible to pay taxes, and the Spanish banking sector is among the leading European countries in terms of taxation. It also enables the payment of dividends to its more than 5 million shareholders, the vast majority of whom are retail investors.

The sector also helps lead society’s challenges such as ageing and depopulation. Spanish banks have improved service for older people by extending cash-desk opening hours—already benefiting more than 6.5 million people over 65—providing personalised telephone support, used by 2.4 million people, and improving websites and apps.

That same commitment also underpins the goal of achieving full financial inclusion in rural Spain before the end of this year, and it was the driver behind the agreement to help families facing the greatest difficulties in coping with higher mortgage payments due to rising interest rates.

All of this is accompanied by our own initiatives and collaboration with various organisations to improve digital skills and financial education through the AEB Foundation’s projects. Good examples include our recent digital skills project “Connecting Older People”, and the expansion—together with the Bank of Spain—of the “Your Finances, Your Future” programme to primary school students, which over its nine editions has trained more than 50,000 pupils.

Our commitment to the talent of the future is reflected in CUNEF University, an expanded development ecosystem with new degree programmes and a new campus. It has a new Chair following a successful transformation into a leading private university. To broaden the horizons of knowledge and public debate, we have strengthened the Spanish Institute of Banking and Finance with a project aimed at raising awareness of the role of banks in the economy and society.

Of particular importance is the sector’s role in leading the digital transition and addressing the challenges of climate change. Spanish banks top the global ranking for customer digital experience, far ahead of their European competitors. The share of digital customers is 71%, of whom 90% access their bank via mobile. Our institutions remain at the forefront in areas such as electronic payments, where Bizum is close to reaching 25 million users. At the same time, the sector maintains a commitment to combating cybercrime and fraud, as demonstrated by our participation in the Action Plan against Financial Fraud.

In terms of sustainability, institutions are continuing their own transformation and are determined to support their customers through the transition. In parallel, the sector has promoted the definition of short-, medium- and long-term sector climate targets as a credible demonstration of its commitment to advancing the decarbonisation of balance sheets in line with the recommendations set out in the Paris Agreement. In addition, through the Spanish Centre for Responsible and Sustainable Finance (FINRESP), the AEB, together with the other sector associations, remains committed to disseminating basic knowledge for the development of sustainable finance, with particular attention to SMEs.

On the regulatory front, the AEB continues to work towards a balanced regulatory framework that enables the sector to fulfil its role safely and effectively. That is why we have challenged the bank tax. We believe it has counterproductive effects on the economy and that it has been justified on two fallacies: extraordinary profits and the bailout. The institutions that today form the core of the Spanish system have contributed more than €30 billion to the Deposit Guarantee Fund and to SAREB. We have also proposed changes to the design of the Financial Customer Protection Authority currently under consideration.

These two initiatives have been accompanied by an unjustified targeting of the sector, which contrasts with banking’s economic and social commitment and its willingness to contribute to improving regulatory quality.

Finally, we believe that Spain’s upcoming EU Presidency could be a good opportunity to complete the Banking Union and ensure that each institution, regardless of its nationality, can be assessed on its solvency and strength. This would be a decisive step in strengthening the global scale of Spanish and European banks.

We are living in times when our economies need the full support of the sector to address challenges such as strategic and financial autonomy, and the ability to compete in a more fragmented world undergoing rapid change. From the Spanish Banking Association, we are ready to cooperate and to contribute to overcoming them.

La entrada The strength and social commitment of Spanish banking se publicó primero en Asociación Española de Banca.

All of this reflects our mission to serve the real economy—something we never forget—and is set out in the Strategic Protocol for the Banking Sector’s Social and Sustainable Commitment, which the three banking associations signed a year ago. I explained this yesterday at the course organised by the Association of Economic Information Journalists, held at the Menéndez Pelayo International University.

The customer is, and will continue to be, at the centre of everything banks do. This is our priority and our raison d’être, which drives the continuous adaptation of our service model to changes in consumer habits and makes it essential to strike a balance between innovation and supporting those who prefer in-person service.

In addition to driving the digital revolution, the banking sector plays a fundamental role in the green revolution now under way, where the greatest complexity is not financing the green economy but the transition of non-sustainable or more polluting sectors. Clear and harmonised rules are needed, along with high-quality data and analysis, stronger public-private collaboration, and respect for the transition and the established timelines, because moving too fast could have undesirable effects.

The banking sector is involved in the major transformations of our society and attentive to customer demands, which also extends to crypto-assets, and therefore cannot remain detached from this reality. In Spain, 12% of adults own crypto-assets. A coordinated and balanced regulatory response is needed in this area to contain risks without undermining innovation.

It is essential that regulation ensures a level playing field for all players engaged in the same activity, regardless of whether or not they are banks. This is not currently the case with non-bank operators, which have access to banks’ customers’ transactional data and, by combining it with their own, can “work magic” to expand and improve the range of products and services they offer.

If we cannot compete with them on equal terms and we do so with our hands tied, our most basic function—providing financing—may be affected. Who will provide credit to households and businesses if that happens?

Spanish banks are prepared and well placed to help the Spanish economy navigate periods of uncertainty, as was evident in the most difficult moments of the pandemic. During this health, social and economic crisis, the banking sector has been on the front line: keeping branches open during lockdown, granting payment deferrals on mortgages and consumer loans, providing ICO-guaranteed loans to 750,000 companies and self-employed workers, and bringing forward the payment of pensions and unemployment benefits.

Alejandra Kindelán, Chair of AEB

La entrada Banks at the heart of the social, green and digital revolution se publicó primero en Asociación Española de Banca.

Indeed, until this new episode of the pandemic, the economic recovery was vigorous and much faster than expected by many of us who, at the beginning of 2020, during those dramatic months of extreme lockdown, feared a slow and uncertain recovery and permanent damage to the financial and business fabric. But that shock, as profound and unprecedented as it was brutal and sudden, left fewer wounds than expected. By mid-2021, the V-shaped recovery, once the vaccination campaign had begun, started to become a reality, particularly in the OECD area and also, albeit with less dynamism, in Spain.

This good news was confirmed, and the Spanish banking sector has not been a stranger to it. Our entities entered this crisis with a genuine shield in terms of capital and liquidity. This allowed them to play an essential role in the first months of the pandemic, injecting liquidity into struggling companies through the ICO-guaranteed loan program. During 2021, they maintained healthy lending activity and managed to practically recover the profitability levels seen prior to the health crisis. This not only clears up any doubts about the sector or a possible systemic risk, but also represents a guarantee so that our entities can maintain and even increase the level of shareholder remuneration they had before the crisis.

Possible doubts regarding the level of provisions made have also been clarified, given the high volume allocated during 2020, the first year of the health crisis. Most importantly, the strong situation of our entities places them in a magnificent position to continue financing the recovery process, as they have done until now, by supporting families and businesses and raising any necessary funds from the markets easily and without problems.

But the commitment of our banks goes much further and responds to the new demands of society and the authorities for them to contribute decisively to the construction of a more sustainable and fair economy through an effective fight against climate change. Our entities have shown their determination to move forward in a practical way, accompanying their clients in the process of decarbonizing the economy, but to do so they ask the authorities for clear rules and criteria.

The European Commission is taking important steps in that direction, both from a regulatory point of view and by making substantial funds available to Member States under the Recovery Plan, with the clear orientation that they be used to build a greener and more digital Europe. Of those 750 billion euros, 140 billion will correspond to Spain (60 billion in the form of grants and 80 billion in the form of soft loans), an amount that our country will receive over three years and which will serve as a valuable lever to modernize the economy. Our banks have offered their collaboration so that these funds can reach the best projects and companies, given the capillarity of their networks and their knowledge of the Spanish business fabric, particularly SMEs.

The Next Generation EU funds are also aimed at boosting digital transformation, the other major strategic pillar of banking, which accelerated exponentially during the pandemic. This represents a tremendous incentive for our banks. In fact, the first litmus test came with the pandemic, and the banks successfully met the challenge of having to operate almost 100% digitally, overnight, both internally and with clients. Furthermore, this acceleration in the use of digital channels is here to stay, and we see the demand for online products and services from customers growing day by day.

However, in this digital world, many risks lurk. The most serious of all is that a part of the population may be left behind from the benefits of digitalization. I am referring to elderly people or those living in rural areas with poor internet access. To include these segments of the population, it is necessary to advance in several directions at once: providing these areas with better telecommunications and internet infrastructure, intensifying digital training programs for the elderly (currently hindered by the pandemic itself, which prevents on-site training), and seeking solutions for the issue of cash, which our banks are working on through agreements with town halls, commercial chains, and the postal service.

Among the risks of digitalization, we must mention new operators—a curious ecosystem where small fintechs, neobanks, payment operators, and large technology companies swarm, all eagerly entering the most profitable niches of the financial business without being subject to the rigors of banking regulation. This mix of shadow banking and technology not only represents a problem of unfair competition for banks but also implies serious risks to financial stability, as the authorities themselves acknowledge, though they have yet to take definitive action in this regard.

In the new digital ecosystem, we also face the emergence of new forms of money. I am referring to digital currencies such as safecoins, backed by liquid and tangible financial assets, and CBDCs, issued by central banks. There are no problems with these, but there are with crypto-assets like bitcoin, which have many negative aspects associated with them: lack of transparency, speculation, environmental problems, lack of investor protection, and tax opacity, which can undermine the progress made in the fight against money laundering.

And finally, there is the problem of cybersecurity, which has become a race against time to be faster than cybercriminals and to be well-prepared for increasingly sophisticated attacks. Banks are working intensely in this field on two fronts: one involving massive investments in technology and specialized personnel, and another through cooperation between banking entities and with national and foreign authorities. However, we need something more: the conscious involvement of users. The AEB has just launched an informative program on security measures that has been very successful, but we must continue to insist, because there is a lot at stake here.

In short, I believe that this positive evolution of the economy and banking activity will receive a strong boost during 2022 and could, furthermore, be reinforced by the expectation that this year will see the long-awaited end of negative interest rates. I sincerely believe that the serious impact that negative rates have had on the banking industry has been underestimated; while the transfer of income to the real economy has been colossal, and perhaps necessary during the last financial crisis, the disruptions introduced have forced banks—stripped of their core business of maturity transformation—to rethink their business models and undertake processes of consolidation and organizational restructuring. All of this has been carried out very quickly and, fortunately, with very little trauma. I hope that one day the effort of transformation and adaptation undertaken by our banking sector will be fully appreciated.

José María Roldán, Chairman of the Spanish Banking Association

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La entrada A year to consolidate the recovery se publicó primero en Asociación Española de Banca.

In his speech at the event on the future of the financial sector organized by REDI, the Business Network for LGTBI Diversity and Inclusion, Roldán stated that, “just as risk diversification prevents problems and losses, diversity minimizes risks and errors,” which always benefits the companies that promote it.

Diversity, he indicated, is like a plant that needs care and vigilance to prevent its deterioration. “For the future, my wish is that this plant will not require special care, but just a little water to keep growing,” he said in his address at the event organized in collaboration with BBVA.

In his opinion, a company, especially a service company, must reflect the way of being and communicating of the society it serves. It “must also strive to attract the best talent and seek it wherever it may be. It is a mistake to hinder that search.”

In this regard, he explained that the Spanish Banking Association understands diversity within a humanistic approach to business “as the respect all people deserve, a fundamental value in society and in business.”

La entrada “Diversity minimizes risks and errors” se publicó primero en Asociación Española de Banca.

It is important to step outside our borders, to engage in dialogue again, to abandon that “cave syndrome” which grips not only individuals but also countries, and to seek new alliances, balances, and common ground. This is important because the world has changed since the pandemic, and not only because of it. Events such as Brexit or the shift in US trade policy, which has not been corrected by the Biden Administration, seem to be here to stay, forcing all countries—but especially those in the European Union—to reposition themselves in the international context and also to find new internal balances.

In the context of this trip to Rome, a question comes to mind for which I do not have a simple answer: why have Spain and Italy failed to maintain a closer cooperative relationship, not only within the European Union but also on a global scale? We cannot ignore the historical ties between the two countries: language, law, shared values (such as the importance of family and friendship), a lifestyle that is the envy of the entire world, etc. But beyond these clichés, the truth is that understanding between Spaniards and Italians emerges naturally, as I have seen throughout my professional career, which has had a clear international focus.

And yet, Spain and Italy, despite being natural allies, are more at odds than one might expect or desire. Almost all of us Spaniards who have moved in international circles have encountered, more than once, some trickery from an Italian colleague, who is much more skilled in the use of the dagger at close range, while we Spaniards were distracted fighting among ourselves, which must also be said.

Why this lack of unity? The first element is a deeply erroneous perception that there is a zero-sum game between the two countries, such that if one of the two increases its international influence, it is at the expense of the other losing it. This idea does not stand up to even minimal analysis. No one in the Franco-German axis suggests that if France were to increase its international weight, Germany would lose its own. This defeatist vision probably stems from a kind of inferiority complex that Spain and Italy feel toward their northern neighbors.

It seems as though our two countries have to apologize for having been part of the euro from the very beginning. In fact, it is quite the opposite: in the late nineties, it was very difficult for Spain and Italy to join the group of founding countries of the Monetary Union, yet the combined determination of both nations clearly demonstrated their ability to join forces in pursuit of a goal when circumstances demand it.

In this regard, it is worth remembering that in the years prior to the launch of the euro, the dominant position in Europe was that the single currency should be implemented at two speeds. The first group would be composed of France and Germany along with a few satellite countries, and the second group would include Spain and Italy, who would still have to prove their orthodoxy after being condemned to a few years of additional penance outside the euro. But Spain and Italy decided to rebel against this strategy—which was completely wrong—so that, at the bilateral summit held in Valencia in September 1996, they announced their intention to meet all the requirements to be among the founders of the euro. And, if I may say so, it was Spain that convinced Italy that the path forward was to fight and not give up.

However, the situation within the EU itself has changed. With the addition of new members, the completion of Brexit, and the new configuration of the distribution of power within the EU, this dysfunctionality of the Southern axis has ceased to be a mere hindrance and has begun to constitute a first-order strategic risk for both countries. Indeed, with the United Kingdom in the Union, the power of the Franco-German axis was offset by the balancing—and, it must be said, annoying—role of the British. In that tripolar configuration, Spain and Italy moved well within the “gaps” of the tripod to assert their strategic interests. With the departure of the United Kingdom, both countries should be aware that it is necessary to balance the hegemony of the Franco-German axis, for while it is very important for the functioning of the Union, excessive weight can disturb its architecture.

The relevance of a well-consolidated Southern axis could, moreover, project beyond Europe. Let us not forget that Italy belongs to the G7, a club to which Spain can no longer aspire and which, with the emerging geopolitical tensions surrounding Russia and China, is going to play an important and complementary role to that of the G20. Spain could contribute to that forum, through the Spanish-Italian axis, the Ibero-American connection, where our country enjoys clear advantages, while the Franco-German authorities find themselves outside their natural territory.

In short, I am convinced that Spain and Italy must rethink their bilateral relations to breathe greater ambition into them. Both countries must be able to abandon petty and short-sighted visions, in order to transform that natural affinity into a driving force that makes the voice of the South heard and valued in Europe and the rest of the world.

José María Roldán, President of the AEB

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La entrada The Southern Axis se publicó primero en Asociación Española de Banca.

To try to minimize these risks, I propose a simpler exercise. I simply believe that the future of the Spanish banking sector is contained within its past and its present. In fifteen years, Spanish banks will essentially do the same thing they have been doing until now, although certainly in a very different way: accompanying their clients through the permanent transformation of economic activity and meeting the needs that arise for families and businesses along the way.

This has been the case until now. Our banks have accompanied Spanish companies in their expansion and internationalization throughout their recent history. But they have also developed efficient payment methods that have made life easier for citizens and provided tremendous value to the Spanish economy. Furthermore, they have made access to housing possible for more than 80% of Spanish families. Our entities have also been capable of surviving a dramatic international financial crisis, from which they emerged stronger and better prepared, after meeting the demanding requirements of new banking regulations.

That preparation and strength were well demonstrated during the early stages of the pandemic, when our banks, with a large part of their workforce working from home, were able to replicate their normal activity and continued providing services to their clients thanks to technological infrastructures that operated at full capacity and without incident. Our banks were thus able to advance the payment of pensions, ERTEs (furlough schemes), and other social benefits, and offered moratoriums, beyond those legally required, to holders of mortgage and consumer loans. But their most relevant action was undoubtedly when, together with the ICO, they set up a system in just a few weeks to provide liquidity—120 billion euros—in record time (a few months) to more than 600,000 companies, most of them micro-SMEs. This rapid action guaranteed the survival of a very significant part of the productive fabric that had been most intensely affected by the pandemic. That is, it allowed many companies to survive the harsh months of lockdown and face the halt in activity, if not with hope, then certainly with future prospects.

At this moment, the efforts of Spanish banks are focused on accompanying companies and families in the process of reactivating the Spanish economy. Fortunately, we have frameworks to work with, such as the Recovery, Transformation, and Resilience Plan designed by the Government, as well as the NextGenerationEU funds, which will be the largest stimulus package ever financed to make Europe greener, more digital, and more resilient.

The use of these funds represents, due to their volume and conditionality, an enormous challenge for the Administration, as well as an extraordinary opportunity that Spanish society cannot afford to miss. The proper use of these funds will require an enormous collective effort and the implementation of public-private partnership schemes. Spanish banks have already expressed on numerous occasions their willingness to contribute to this project, as they have the means to reach companies, particularly small and medium-sized ones. Their widely proven capacity to analyze and assess projects is undoubtedly an additional strength that must be taken into account.

Furthermore, the green revolution and digital transformation, the two main pillars of the NextGenerationEU plan, are also the areas that make up the transformation strategy of the Spanish banking sector. Because if there is one thing we can be sure of, it is that in 15 years, our banks will be greener and more digital, and in those years they will have contributed decisively to the progress of Spanish companies and families in both processes. Fifteen years have already passed, for which I express my most sincere congratulations to the team at El Economista, and fifteen years of a near future for which I wish them every success.

José María Roldán, President of the AEB

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La entrada In 2036: Greener and More Digital Banks se publicó primero en Asociación Española de Banca.

The principle of Caveat Emptor (buyer’s due diligence) enshrined in Roman Law has been incorporated into many legal systems, including those of common law. However, in the first decades of the 21st century, the concept has been eroded in financial markets, where a zero-tolerance consumer rights approach, prone to litigation and penalties, is being introduced. This impacts markets, as the price (the compensation one party gives to another in exchange for a unit of goods or services) is not well defined. The new equilibrium, among other consequences, will lead to a lower volume of products, a reduced diversity of products offered, a higher price, and a lower volume of financial services offered to clients with less sophisticated financial literacy. In this way, the protection rules created to protect the weakest segment of consumers may end up harming them.

Introduction

I must confess that I have a soft spot for Roman culture. Yes, it is true that as an empire they did terrible things, crushing every opposition they encountered from Hispania to Judea, from Britannia to Germania. But they created things, from glass windows to the Porta Nigra in Trier, that have endured over time, as no other civilization in Europe has managed to do.

One of those lasting inventions took place in the field of law. Roman law, the ancient legal system, is still studied today. Considering it is 2,000 years old, this is by no means a minor feat. The reason is not only the adequate architecture of the rules, which forms the basis of all civil law systems, but also the robustness of the principles that underpin it. In fact, many principles derived from Roman law have even been adopted by common law countries.

The Principle of Personal Responsibility and Consumer Protection

One of the principles of the Roman legal system that has endured to this day is caveat emptor, which can be translated as the buyer’s obligation to ensure, to a reasonable extent, that the good or service acquired does not contain any hidden defects (either physical or in the form of underlying risks). Inevitably, the seller of any good or service has more information about its nature than the buyer, and this is precisely why the buyer must be diligent in assessing the characteristics of the good or service purchased. In the presence of asymmetric information, buyer’s due diligence is considered an essential factor in ensuring a sound business environment.

That principle was abandoned at the end of the 20th century, with the emergence of a consumer rights philosophy. Instead of the application of personal responsibility, it was considered, and rightly so, that for unsophisticated buyers, regulation was necessary to protect them from unfair practices when purchasing goods or services. The issue of asymmetric information was resolved by obliging the seller to compensate the buyer for hidden defects in the good or service offered.

Of course, the aforementioned principles must contain some limits to maintain the proper functioning of market-based economies. In particular, protection only extended to unsophisticated consumers, and even for this group, the principle of good faith on the part of the seller remained in force.

In practice, commercial life was preserved by offering merchants a safe harbor: if some basic principles were respected (right to return goods shortly after purchase, warranty for hidden damages, etc.), the merchant knew that the transaction would not be subject to control and review by the authorities. Or, in other words, a safe harbor refers to a situation where strict compliance with a set of rules established by authorities protects financial firms from litigation and supervisory actions. This safe harbor allowed for a calm business life for financial firms: compliance costs could be identified ex-ante and kept under control.

In any case, the actions of the courts, as ultimate guarantors of maintaining a fair market for financial products, ensure the protection of consumer rights, always under the principle of “caveat emptor.” In particular, in the U.S., the punitive justice system and class actions (in which a group of consumers defends their rights in a lawsuit filed by a subset of the plaintiffs) represent a very powerful additional disciplinary element to prevent abuses. In Europe, the existence of a detailed set of obligations allows for a simple comparison by the courts regarding compliance with the conditions linked to the safe harbor.

The Rise of a Zero-Tolerance Culture and the Expansion of Consumer Rights

Since the first decades of the 21st century, we have been witnessing an additional impetus on the consumer rights front and a review of the principle of buyer’s due diligence. A zero-tolerance philosophy means that any failure (in terms of consumer protection) in a single transaction, among millions of transactions of the same type, leads to increasingly strict rules that weaken the principle of caveat emptor.

This movement is also reversing the burden of proof, to the point where for financial firms, the “safe harbor” is becoming increasingly unattainable. If an isolated failure among millions of transactions induces a reaction that causes a wave of court rulings and reparations, this represents a situation of uncertainty that financial firms are unable to face in advance. Transactions that were considered safe until that moment suddenly become unacceptable.

Why is this shift in societal attitude so important? In the short term, it affects the profitability of financial operators. Ultimately, shareholders bear the impact. But if we consider that ROE is an endogenous variable that must be equal to or greater than the cost of capital (the remuneration that shareholders demand to remain in the capital of a financial institution) for the company to survive in the long term, the medium-term consequences will arrive as financial firms adapt to the new environment.

The first result is a decrease in supply. Companies that do not react will be forced to abandon their businesses, as their profitability will not match the cost of acquired capital. And companies that do react will try to avoid potentially weaker clients (weaker in terms of financial literacy, cultural level, age, employment prospects, etc.). The new equilibrium will be accompanied by a lower supply of financial services, especially for the weakest clients. And we must not ignore that the worst problem for any consumer, the biggest attack on their rights, lies in not being able to access financial products.

Another reaction will likely be a simplification of product offerings. Simpler products, with solid commercial margins, are a rational response to increasing consumer rights. A simple financial product will be less affected by potential changes in societal mood. Overprotection can lead to a more limited product offering.

And, finally, another obvious reaction will be increased digitalization. If the conversation between a client and an employee of a financial firm is key to determining the possibilities of a future setback in terms of compensation, then one way to reduce risks is to eliminate that human interaction.

The Failure of the Regulatory and Supervisory Architecture in the Field of Conduct Rules

The Design of Conduct Rules

Felix Hufeld, head of the German Supervisory Agency (BAFIN), has pointed out a difference between the architecture of conduct rules and solvency rules for financial firms. Both regulations are not immune to crises, and financial crises and scandals impact regulation. We saw this after the Global Financial Crisis (GFC), with the push to enact Basel III after Basel II was finalized (bad timing: Basel II was completed just before the GFC). And the same is observed in the field of conduct rules, whether as a result of financial scandals or court rulings.

Solvency regulation is reformed in a more structured and multi-year manner, with clear debates on the flaws of previous rules, the principles underlying the proposed new regulation, and with well-defined impact studies and consultation processes. Conduct rules also respond to a well-thought-out design, but the succession of small local financial scandals adds a gold plating or local over-regulation that makes them more complex, confusing, expensive for financial firms in terms of compliance costs, and indecipherable for the consumer.

This “layered” structure of conduct rules goes against the availability of affordable financial products for all consumers. The goal of conduct rule regulation should not be to restrict the supply of products to a limited set of options or to target them at a small group of consumers (the most prosperous). It should never be forgotten that the worst outcome for consumer rights is not having access to goods or services. The line between effective protection and regulation that does not stifle supply is both thin and indispensable.

The Digital Revolution and the Perimeter of Consumer Protection

The digital revolution will probably represent a positive development overall (once costs and benefits are netted out). Let’s consider aspects such as better and cheaper access to financial products, increased competition, an improved user experience, increased efficiency in the financial sector, etc. But we cannot be naive about the associated challenges: any revolution usually means that someone’s blood ends up splattering on the asphalt.

Some risks are already obvious: cyber risk and cybercriminals abound in this new world. But the challenges go further. The digital revolution is blurring the lines between countries, but also between sectors. And, even more revolutionary, it is making the regulation of digital service provision much more complicated. We cannot even agree on the architecture of regulation: should we continue to regulate based on who you are (entity-based) or based on what you do (activity-based)? Should we implement the mantra of “same activity and same risks imply same regulation and supervision”? Should we opt for a new combination of activity-based and entity-based regulations for bigtechs?

All these questions are important, as a consumer may encounter very different de facto protection depending on the type of company providing the services. And the problem is not only that of equivalent regulation: we must not forget that any regulation is only as good as the supervision that ensures its implementation and monitoring.

Or, in other words, what is the point of regulated financial firms being subject to strict rules if financial services can be provided by unregulated financial firms from remote locations (or without physical employees)? The mix of the digital revolution, the unbundling of financial services, and the disappearance of sectoral and national borders pose a great challenge for consumer protection.

Finally, the history of the financial sector reminds us that, along with financial innovation that promotes well-being, harmful financial innovation also often occurs. This time will be no different. Technology brings opportunities, but it will also bring headaches.

The Complexity of Rules

The basic rationality of conduct rule regulation (offering an adequate level of protection to consumers while providing financial firms with a safe harbor) is being challenged by the great complexity of financial regulation.

Two elements have blurred this principle. First, the retrospective bias by which past contractual relationships have been judged based on principles currently in force. If economic progress is accompanied (and rightly so) by ever-increasing levels of protection, there is a risk that supervisors or courts will apply new and higher protection standards to old contracts. For example, most of the litigation surrounding mortgages in Spain may correspond to this type of bias. Financial firms that did what was right (and not just what was acceptable) when the financial contract was signed, see their “safe harbor” disappear as principles and standards on financial consumer protection evolve.

The second factor affecting companies is the complexity of regulations. In general, regulators have tried to address the increasing complexity of the financial ecosystem by increasing the density of rules (something that can be observed, for example, in Basel III or the Resolution framework). In the case of financial consumer protection, the move towards more complex financial regulation is the result of two forces acting in the same direction. The first, already mentioned, is the impulse to codify all possible interactions between consumers and financial firms in an increasingly complex financial sector, where new intermediaries and novel financial products abound. The second, also cited, is the impact that financial scandals have on the formation of new protection rules in the form of additional layers. This mix of forces, normative (rules that respond to a well-thought-out design by the authorities) and positive (which react very quickly for political reasons to specific scandals), is exclusive to the field of conduct rules.

What does all this mean in practice? Financial firms are facing increasing complexity in financial regulations, which imply higher compliance costs, but which, due to their evolution (lack of stability) and increased demands, are not providing the “safe harbor” they need to operate. Selling financial products under these circumstances becomes an impossible-complex exercise: like driving on a road where traffic lights and rules change as you drive.

The Risks of Artificial Intelligence and Outcomes-Based Consumer Protection

Can a well-designed financial program engage in misselling? In principle, these improper practices are the result, on the one hand, of the interaction of two human beings (one is a financial sector worker and the other a consumer who wishes to purchase a financial product), on the other hand, of the confusion that can arise from that interaction, and finally, of the sale of an unsuitable product to the consumer. If the human factor is eliminated on the financial firm’s side, the possibility of confusion arising is also suppressed. Or, in other words, a well-constructed computer interface would ensure that the consumer, after having gone through all the procedures, with all the incorporated checks, would only buy a product that suited their needs.

Do supervisors agree with this approach? Not at all. They recognize the difficulties of demonstrating, for example, that artificial intelligence, with extensive use of big data and machine learning techniques, can engage in misselling or abusive sales practices. But they also point to the solution: if the outcome is unfair to the consumer, then it is possible to impose a sanction on the company. We are moving from a punitive system based on objective evidence to an outcomes-based sanction system.

What is the problem with this system? It is an open protection system that offers no “safe harbor” to companies.

Conclusion

Perhaps we wonder why all the above arguments are important. I believe they are, for several reasons. Any market transaction is defined by three elements: supply (someone willing to sell), demand (someone willing to buy), and a price (the amount of payment or compensation one party gives to another in exchange for a unit of goods or services). The problem with an open protection system that lends itself to litigation and penalties is that the third element, price, is not well defined.

What is the rational response to this situation? That the company will compensate for the lack of clarity in pricing by shifting the supply curve upwards: the new equilibrium will be characterized by a lower volume of products, a reduced diversity of product offerings, and higher prices. But given that the risk of litigation is not evenly distributed among clients, but is higher for less sophisticated clients, the new equilibrium will likely mean that lower volumes of financial services are offered to weaker clients, or to clients with less sophisticated financial literacy. In other words, the rules and practices being put in place to protect the weakest consumer group may end up severely harming this very group of clients.

The Romans knew it well: the proper functioning of commercial traffic requires a little diligence and care from everyone involved in any transaction. Let us hope that the concept of caveat emptor returns to legislation in the not-too-distant future.

José María Roldan, Chairman of the Spanish Banking Association (AEB)

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La entrada Caveat Emptor se publicó primero en Asociación Española de Banca.

The president of the AEB noted that the crisis triggered a regulatory wave that served to improve the resilience of traditional banks. In fact, “nearly two years after the Covid-19 outbreak, the banking sector has been a source of strength and part of the solution to problems during and after the pandemic.” However, he specified, shadow banking institutions—such as insurance companies, hedge funds, and investment vehicles—continue to grow while avoiding the regulations that have strengthened the banking sector.

Not only that. He pointed out that new intermediaries and instruments emerging from digitalization processes and the fight against climate change are adding complexity and a lack of transparency to the shadow financial system. Both processes have seen a sharp acceleration during the pandemic. “Undoubtedly, the green revolution—a new ecosystem created from scratch in a couple of years—is here to stay, bringing with it an enormous burden of complexity, risks, and uncertainties.”

In short, “we have the shadow banking sector, we have the digital world adding a layer of complexity, and furthermore, the new green ecosystem adding even more complexity. Authorities had and still have difficulties understanding what was happening in the shadow banking sector, but now they face an even greater challenge.”

In this regard, he added that “authorities know they have a problem they must address sooner rather than later, because the digital and green revolutions are advancing very rapidly. But I do not think they yet have a clear idea of what needs to be done.” The problem, in his opinion, is that by the time authorities decide what to do and begin monitoring what is happening with reliable data, it may already be too late. The president of the AEB therefore encouraged “not setting aside the problem of shadow banking and striving to understand the new fragilities being created right now within the financial ecosystem.”

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La entrada Shadow banking: increasingly large and complex se publicó primero en Asociación Española de Banca.