I have always been reluctant to speak publicly about issues affecting competition in the banking sector. First, because I believe that the Spanish institutional framework\u2014and, by extension, the European one\u2014with strong, independent institutions tasked with monitoring potential collusive practices and courts that actively review their decisions, is robust enough to ensure that the principles of free competition are respected at all times. Second, because I know that banks, as the facts show any objective observer, compete today with the same or greater intensity than they have in the past. Third, because as representatives of banking associations we never engage in these matters, as we have always stayed out of our members\u2019 commercial policies. <\/p>\n
However, the recent consolidation moves in the sector are generating, in my view, an unnecessary debate built on mistaken premises. In these circumstances, I believe it is worthwhile to help clarify the discussion. <\/p>\n
What is the issue to be debated? That the number of credit institutions will fall, and with it competition. Theory suggests that if an oligopoly forms in an industry, the remaining firms will raise prices, reduce the supply of their products, and not invest in innovation. Extraordinary profits and unmet demand would be the first warning signs. It is obvious that these two conditions are not met in the banking industry, whose profitability has been under enormous pressure for a decade and where solvent demand for financing has been declining for many years (leaving aside the extraordinary year 2020, when banks were able to meet their customers\u2019 demand for financing without difficulty). <\/p>\n
It could be argued that, while the current situation is not worrying, the future one could be. However, that could only happen if there were barriers to entry into the banking business. But what we observe is precisely the opposite: all kinds of new competitors, supported by the technological innovation they bring, but also by the regulatory arbitrage they exploit, are penetrating virtually every segment of the financial business, with the exception of deposit-taking\u2014an activity reserved exclusively for licensed banks but which, in an environment of negative rates and low credit demand, is quite unprofitable. This is what we have been calling the deconstruction of the banking business, with fintech, bigtech and shadow-banking operators attacking<\/em> the profitable niches of banking activity. We are talking about payment businesses, but also corporate and consumer lending. Incidentally, banks are responding to these challenges with a push in innovation unlike anything seen before (despite the fact that this sector has always made extensive use of information technologies). In fact, far from wasting time assessing potential strategies for collusive practices, banks are focused on addressing the unbalanced competition posed by players that can offer banking services and products without being subject to the very demanding banking regulation: we are, of course, talking about regulatory arbitrage. <\/p>\n The closure of branches nationwide\u2014even at the local or neighbourhood level\u2014is often cited as an argument against this type of merger. But with the advent of a genuine technological revolution, which in effect allows you to carry the bank branch in your pocket thanks to digital banking and smartphones, these proximity arguments lose relevance. The pandemic has also accelerated the use of digital banking channels precisely among those customers who, due to age, were more reluctant to use them. <\/p>\n Moreover, these arguments overlook that we are under a single currency and within a Banking Union regime: the relevant market is no longer national, but European. One could argue that this Banking Union is not complete, but if we continue to think in national terms, it never will be. And thinking in that European dimension, and comparing ourselves with the United States, there is still a long way to go. For example, Wells Fargo, the quintessential American retail <\/em>bank, has 5,129 branches; JP Morgan, 4,999; Bank of America, 4,241; and so on. Those numbers cannot be extrapolated, of course, as these are branches with far more staff and less efficient than Spanish ones. But these figures serve to show that linking the decline in the number of branches in Spain to competition problems is, at the very least, reckless. <\/p>\n