As is well known, the last thirteen years of my professional career have been spent at the Bank of Spain, serving as Director General of Banking Regulation. This fact, combined with the search for new professional horizons, has allowed me to reflect on how much the vision of the financial system has changed in those thirteen years. Or, to put it more prosaically, there is nothing like moving house after thirteen years of accumulating papers to realize the changes the world has undergone. <\/p>\n
Indeed, those first years of the 21st century were the years of the Gramm-Leach-Bliley Act, which eliminated the separation between Universal Banking and Investment Banking in the United States, and also the years of the development of financial risk management techniques (favored by the increasing computational capacity made available for risk control). In those early years of the 21st century, the banking model seen as hegemonic was the so-called “originate to distribute”; that is, banks generated credit risk, which they then transferred to final investors through complex securitization structures. These were years in which warnings were also given about the dangers associated with these developments: consider, for example, the collapse of the hedge fund Long-Term Capital Management. However, the success of the authorities, in this case the New York Fed, in containing the crisis without contagion probably exacerbated a false sense of security. <\/p>\n
Spanish banking did not participate in that originate-to-distribute model, as it remained faithful to its “buy and hold” model\u2014that is, assuming credit risk without transferring it to third parties. They were large, sophisticated banks, international in some cases, but they remained “Main Street” banks (as opposed to “Wall Street”), focused on traditional commercial banking, on providing services to their clients, and on maturity transformation (that is, capturing short-term liabilities to lend them profitably and safely in the long term). At that time, it seemed one had to apologize to international colleagues for having such traditional and uncomplicated banks. In a few years, even months, the fragility\u2014or rather, the impossibility of sustaining the originate-to-distribute model\u2014and the robustness of the traditional client-centered banking model were demonstrated. <\/p>\n
This is not the place to reflect on the crisis, its causes, and its consequences; suffice it to say that the initial joy of not having followed the siren songs and of having remained faithful to the traditional banking business was short-lived. Specifically, the bursting of the real estate bubble, together with deficiencies in the risk management of some entities with unique and, it must be said, archaic corporate governance models, meant not only that banks had to face an unprecedented cyclical situation\u2014with a “double dip” or double recession never before seen in our economy\u2014but also that viable entities had to contribute resources to the restructuring of a deeply damaged part of the financial system. And they have managed, not without considerable effort, to clean up their balance sheets, strengthen their capital, maintain a profitable business model (despite the low interest rate environment), and support the restructuring of other parts of the system. And all of this at the same time and with an economy in recession. In those leaden years, and unlike what has happened in practically all our neighboring countries, healthy banks have been a factor of stability, thanks to their model of banking at the service of the client. <\/p>\n