José María Roldán (Teruel, 1964) is the chairman of the Spanish Banking Association (AEB) and vice-president of the European Banking Federation (EBF). He took the helm of the banking association in 2014 and has since worked, among other things, on trying to improve the reputation of a sector he knows inside out.
Roldán comes from the Bank of Spain, where he was Director General of Banking Regulation and Financial Stability. He has also been a member of the Basel Committee on Banking Supervision and has worked in other European financial bodies. He is a staunch defender of the Banking Union project and, with one year left in his mandate, he acknowledges that for Spanish banks, it would be beneficial to merge the AEB and CECA.
The banking sector carries a reputational problem that is, to a large extent, a legacy of the last crisis. With Covid-19, the sector’s reputation has improved, but news such as the CNMC’s investigation into some banks is damaging that image again. Does this matter concern you?
Of course it concerns us, a great deal. Banks have made a significant effort in recent years to improve their public perception which, as you rightly say, was badly damaged in the last crisis, as was only to be expected: when society has to pay for the mistakes of bad managers, the image of that sector cannot emerge unscathed and, as always happens, the innocent pay for the guilty.
In the Spanish case, the savings bank crisis (or rather, that of some savings banks) was, together with a brutal euro crisis, the trigger for disillusionment. And despite the fact that none of the entities or managers who contributed to that crisis have remained active, those who avoided the crisis and the banks and savings banks (now all of them banks) that survived it through their own means have to pay, not without a certain injustice, that reputational cost.
What has the banking sector done to improve its image?
Banks have directed their efforts towards improving three key areas: solvency, to prevent other similar financial crises from recurring; governance; and customer relations. As you can see, this is not a PR exercise; fundamental issues have been addressed, for which many human and financial resources have been employed, and it is taking a long time to do so. This process has already translated into clear progress; however, something suddenly happens and steps are taken backward, losing part of the ground gained.
These stones in the road are discouraging because it gives the impression that a part of society, and sometimes even institutions, are not aware of these efforts, and it seems that, against banks, anything goes. No one benefits from a weak banking sector with a poor image: the Spanish economy and society need healthy, strong banks that perform their role well—such an important role—of financing companies and families.
And, of course, the entities themselves must be the first to be clear about this, so if any act incorrectly, the full weight of the law must fall upon them for the good of the sector as a whole. We are the most interested party in this, because when responsibilities have not been clearly delineated, the AEB banks have been notoriously harmed.
But in the specific case of the proceedings opened by the CNMC, you seem to have been very critical of this action.
In a public speech, I commented that, due to my professional experience in similar institutions—I am referring to the CNMV—I have always felt uncomfortable with the idea of making disciplinary proceedings public at their opening, when they have not yet been resolved, as it undoubtedly harms the reputation of the party under investigation, and even that of the sector to which they belong, which is then very difficult to repair, even if the case is resolved without sanctions.
It is a debate that I find interesting to open and I understand there may be counterarguments, but I modestly believe that those I put forward carry a lot of weight in light of what I mentioned before: it takes a lot to improve a reputation and very little to lose it. In any case, I do not think the criticism is excessive: it is more of an almost theoretical debate, I would say.
And is it true that banks have improved their reputation in this latest crisis?
Yes, undoubtedly. Fortunately, this crisis found the banks in a position of strength—earned with much effort in recent years—which has allowed them to help their customers with enormous efficiency and speed.
Consider the difference between having to ask Europe for 100 billion euros to save half of the Spanish banking sector, and easily securing 100 billion that banks have been able to lend on this occasion to companies—more than 700,000—to save many of them from closing following the halt in activity decreed to deal with the pandemic. And the banks have done many things: mortgage and consumer loan moratoriums, facilities for receiving unemployment benefits, ERTEs, and other public aid…
In this difficult ordeal of Covid-19, our banks have shown that they have very professional staff, very advanced technological structures, and the commitment to stand by their customers through thick and thin. We are very proud of how the sector has responded in these difficult times, and many social sectors—even from the Government—have recognized this job well done.
Is the debate opened by the Government regarding the salaries of some bankers another blow to your work to improve the image?
It is an old and, of course, legitimate debate that requires a greater explanation on our part. Firstly, I want to say that there is no sector with a more regulated remuneration system than banking. Following the previous crisis, authorities subjected bankers’ bonuses to all kinds of limitations because they understood that in some cases they had acted as a perverse incentive in risk management.
Furthermore, they were subjected to a regime of maximum transparency: it is the shareholders at their meetings who decide the emoluments of their bank’s senior management. And I assure you that these matters are debated in depth at the meetings, where divergent and opposing positions are often expressed. Regarding the quantitative aspect, our entities are aligned with the large IBEX-35 companies and European banking, and are well below the large American banks. Even in recent years, a clear downward trend has been observed, not to mention that during the pandemic our bankers have reduced or waived their bonuses.
In the last crisis, the financial sector lost some 18,000 jobs, and with the pandemic, it is on track to suffer a reduction in similar terms. Will further adjustments be necessary?
Talking about figures is very difficult, but the truth is that there is a very significant process of adjusting installed capacity underway, which is known to everyone. Whether this process will continue or not depends on how the sector’s profitability evolves, and this variable is influenced by many factors: the level of interest rates, the intensity of technological change and adaptation to the economy’s sustainability process, competition from large technological operators, and the evolution of the global and Spanish economies themselves.
There are many factors that depend on variables and decisions by governments and private agents. As you can see, making predictions is almost impossible, as the pandemic itself has shown us. Who was able to predict at the end of 2019 what was going to happen a few months later?
When addressing the ECB’s low interest rate policy, banks usually focus on the damage to profitability. However, the Bank of Spain often points out that the low interest rate policy is also helping to sustain the economy and therefore reduces delinquency. Do you share this idea?
The ultra-loose monetary policy that the ECB has been practicing for years has a clear objective, which is to stimulate the real economy, even if this has been to the detriment of the financial sector. The transfer of income from the financial system to the so-called real economy has been colossal, and I do not know if this can be compared with the supposed indirect benefits that this type of policy has had for the banking sector.
For a banking sector like the Spanish one, which is very commercial and focused on obtaining deposits and lending them to families and companies, it is evident that this monetary policy compresses margins and puts pressure on profitability. This type of business, centered on maturity transformation, lacks value in a negative rate environment and now needs to be reinvented. Commercial banking has undoubtedly been the big loser of the international financial crisis. And this is despite the fact that it was socially useful, non-speculative banking—the kind that finances the real economy and was not responsible for the crisis.
And yet, shadow banking, which was at the root of that devastating crisis, continues to grow uncontrollably and is becoming increasingly complex and interconnected in plain sight without anyone doing anything, except expressing concern from time to time.
Regarding low or negative interest rates, what we must now ask ourselves is whether they are effective and how much longer they should last. We were asking that question when the Covid-19 crisis broke out, and we stopped asking it for a while. Everyone recognizes that the longer we remain under this regime, the more evident its negative effects become, such as the appearance of bubbles in real or financial asset markets.
Is it good news that signs of inflation are starting to open the debate on when the ECB will have to study the start of tapering stimulus, as a preliminary step to starting to raise rates?
Although the official message is that the situation in the euro zone is very different from that of the U.S. regarding inflation (which is probably true), the truth is that those incipient signs of inflation have indeed opened the debate on when central banks will begin to withdraw stimulus and when they will proceed to raise rates. In the United States, that path has already begun, but it seems it is a bit early for the European economy, which still shows signs of weakness.
Undoubtedly, sooner or later the crutches will have to be removed from the economy and we will have to be prepared for when that moment arrives. For Spain, it is very important that we start preparing a fiscal adjustment program, not for right now, but in the medium term.
It is necessary to correct, at a good pace and by sending the right signals to the market, the level of public debt reached during this crisis. We must maintain market confidence, but also the safety margin—the flexibility cushion—that we had before the COVID crisis. We cannot ignore that lately, once-in-a-hundred-years crises tend to occur every 10 years.
Another legacy remains from the last crisis, a positive one in this case. I am referring to the Banking Union. However, it remains incomplete. What are the consequences of this for the European financial sector and for the public?
It has very serious consequences, undoubtedly. The Banking Union was the best project that emerged in response to the previous crisis. The Banking Union was a real, decisive step towards resuming European integration, which had been left very battered in the previous crisis, where an intense process of renationalization of economies and financial systems took place, the clearest exponent of which was the euro crisis, which affected the public debt markets of Southern Europe (as well as Ireland).
I can only say that this process must be perfected and concluded by overcoming the political barriers that are obstructing it. The Banking Union is, currently, the best guarantee for the survival of the European Union, which is threatened by adversaries of very different kinds, interests, and ideologies, both internal and external. Faced with these threats of regression, we cannot stand still; there is no alternative but to take steps forward, and the Banking Union, together with the Capital Markets Union (CMU), is the most important of them.
For citizens, the Banking Union is also of extraordinary relevance. It will offer consumers the possibility of accessing the same financial services and products, regardless of their country of origin, as well as equal security for their deposits. All of this will give an enormous boost to competition, stimulate economic growth and, above all, make clear the advantages and privileges of being a European citizen. Having the approval and endorsement of citizens is very necessary to consolidate the European Union.
Despite the fact that Covid caused a historic drop in GDP in 2020, delinquency has evolved better than in the last crisis. What do you expect for the second half of the year? Will there be new provisions as a result of the pandemic?
Banks, as a whole, made sufficient provisions in 2020 to cover the expected delinquency in this crisis. It cannot be ruled out that there may be specific needs to reinforce provisions, but in general, the impression among banks is that, even if delinquency rises slightly, it can be managed without problems. There is not going to be a tsunami of delinquency, as we might have feared at the start of the crisis.
What role should banking play in the distribution of European funds?
Banks can play a key role, as intermediaries, in the distribution of European funds. It escapes no one that the great problem with aid of such magnitude lies in its execution. Even in normal times, Spain has difficulties with European funds, which on some occasions remain unapplied. We must prevent that from happening with the Next Generation program funds, and to that end, banks can be an extremely useful instrument.
Banks already proved in the ICO-backed loan program, launched during the lockdown, that they can be excellent collaborators with the public sector, with which they have worked in perfect harmony these months. They also demonstrated their capacity to get financing to where it was most needed, thanks to the capillarity of their networks and the fact that they know their customers very well. If there is one thing banks know how to do, it is evaluating projects and analyzing risk, and they can also mobilize additional or bridge financing to develop the full potential of this aid, which represents a unique opportunity to modernize our economy and make it more productive and inclusive.
As if these were not reason enough, banks have been developing their activity for years around two strategic axes—digitalization and the sustainability of the economy—and it is precisely these two axes that have been chosen by the Next Generation program to boost the European economy. In short, banks offer to collaborate in channeling European aid and place their means and capabilities at the service of this project.
Is there any sectoral initiative, at a European level, for the financial sector to have an active role in this distribution?
Each country has its own challenges and constraints. SMEs do not have the same weight in economic activity and job creation in all countries. And the resources allocated to countries like Germany are much lower than those destined for Spain. All of this explains why, beyond some specific initiatives like the European Payments Initiative, there are no pan-European initiatives for the banking sector.
And the ecological transition—is the sector prepared to stop financing polluting activities and commit decisively to green projects?
The sector is prepared to accompany its customers—large, small, and medium-sized enterprises—in that process, which must be done in an orderly manner and with clear rules. This is what concerns us most now.
There has been an avalanche of initiatives, rules, indices, agreements… in short, a maelstrom that is preventing us from progressing and knowing what we have to do. And this is despite the clear will of the sector to advance in this great project of making the economy more sustainable and inclusive, what is known as responsible finance, because it responds to the three ESG criteria—that is, it takes into account the effect that, as a company, its activity has on the environment and the social surroundings, and that its governance follows criteria of diversity, inclusion, and transparency, among others.
This commitment from the sector goes beyond words, as was evident at COP25, held in Madrid. At this climate change summit, which brought together high-level representatives from 197 countries, Spanish banks made a joint commitment to proceed within a set timeframe to reduce the carbon footprint in their credit portfolios, in a way that can be measured with internationally approved criteria and in line with the objectives of the Paris Agreement. In this way, our entities aligned themselves with the Collective Commitment to Climate Action promoted by UNEP FI.
Banking is immersed in a merger process, but it still has two associations. Would it be logical to merge the AEB and CECA?
In my opinion, it would be positive for the sector to have a single association representing the entire sector, which would give it more capacity to make its voice heard both in Spain and in the international context. And the truth is that I see no fundamental reasons why this should not be the case, now that all entities—private banks and the former savings banks—share, as banks, the same legal nature and business model (that of commercial banking).
In its day, the AEB modified its statutes to facilitate the integration of both associations which, undoubtedly, will one day in the not-too-distant future become a reality. Meanwhile, AEB and CECA maintain an excellent relationship and collaborate on numerous joint projects. These are very good foundations for this integration to occur smoothly.
You were born in Teruel, so I understand you well comprehend the complexity of the future of ’emptied Spain’. But at the same time, you represent a sector that is closing ATMs in rural areas due to profitability issues. How should Spain face the challenge of territorial cohesion and depopulation?
Yes, I was born in Teruel and I know well the drama of inland Spain, which has been depopulating for years to the point of reaching an unsustainable and very unfair situation for the inhabitants of these areas, who lack the most basic services. There is a lack of schools, doctors, pharmacies, health centers, and, above all, public transport, among others. Teruel has neither a direct train from Madrid nor even a direct non-stop bus: believe me, it is no longer just unfair, but unjustifiable in the 21st century.
And to this we now add the closure of many bank branches, due to the crisis of the savings banks that primarily served rural areas. We are trying to alleviate the problem of access to cash and I believe there are many formulas that can be implemented: agreements with town halls, supermarkets, pharmacies, the Post Office, multi-brand mobile bank branches, etc. But the bulk of financial services, for all types of consumers, regardless of where they live, is already being provided through digital channels, and for this, good internet connections and digital and financial education for the elderly are required.
The banks and the AEB are developing an education program in this field—Experclick—and our intention is to continue scaling the program in the coming years, but we understand that more efforts and resources, both private and public, need to be combined in this direction.
Interview with José María Roldán, chairman of the Spanish Banking Association (AEB), conducted by María Vega
