Ten Years of the Law on Savings Banks

Last December marked ten years since the publication of the Law 26/2013 on Savings Banks and Banking Foundations. This text was approved by a General Courts with significant parliamentary fragmentation, yet they were able to recognize the extraordinary moment they were experiencing and forge a broad consensus.

It is true that this regulation (or a similar one) should have been enacted earlier. However, when we look back to 2008, we see that, unlike some countries around us, the Spanish financial system weathered the first wave of the North American subprime crisis better, largely thanks to a business model focused on retail banking, with no exposure to so-called toxic assets.

Thus, the impending structural reform of Savings Banks was delayed. However, imbalances in the real estate market and the unsustainable debt of both the public and private sectors resulted in a greater impact from the international financial crisis in Spain. The outcome is well known: an intense economic recession that was accompanied by a spike in unemployment, which increased delinquency, affecting those credit institutions that were less prudent and had a greater concentration of risk in the real estate segment.

In this context, the weaknesses of the legal structure of Savings Banks, designed in 1977 and 1985, became more evident. In particular, their inability to raise capital through shares (like any bank) was a significant issue. The only way to increase their own resources was through profit retention, something unfeasible in that context. In addition to facilitating a strengthening of solvency, a law was required that would improve their governance and meet new international standards, incorporating professionalism and suitability requirements for the members of their governing bodies.

The arrival of Isidro Fainé at the Association of Savings Banks (CECA) fostered a sector reflection and the development of studies that led to a draft of a new regulatory framework, designed by technicians from the Ministry of Economy and the Bank of Spain. The bill was enriched by gathering necessary opinions and then, in the chambers, the project achieved the agreement of all groups in Congress (from the left, right, and nationalist): only 13 votes against, out of 350 deputies!

This robust parliamentary agreement served as a catalyst for a commendable implementation effort. Employees and executives of CECA sector entities drove a profound transformation of the system. A complex, silent task, which also unfolded under a certain stigma, when those leading it were either new professionals or precisely those who had successfully navigated the difficulties of the crisis.

Two decades after its approval, it is time to assess the contribution of the law and its execution. In a context that is not conducive to banking business (ten years of extraordinarily low or negative interest rates), the new law facilitated integrations into larger, more solvent groups and placed the new banks that emerged from this process on equal standing with other credit entities in terms of their recapitalization capacity, access, and scrutiny of the securities market. What matters most is that the Social Work, one of the sector’s hallmarks, has been preserved. Through the new foundations (ordinary or banking, depending on the percentage they hold in the capital of the new banks), this social return has been continually supported year after year by the dividends obtained from their shareholdings. Investment in Social Work by the entities associated with CECA during the year 2023 has reached 850 million euros and has benefited 31 million people. Behind this figure are increasingly effective projects in research and education or social ones, such as job insertion, fighting child poverty, or providing palliative care.

The banking foundations, in addition to being professional managers of this Social Work, have proven to be an ideal shareholder for banks. A long-term and deeply rooted shareholder, which favors the sustainability of credit activity and, consequently, financial stability. With the 2013 law, the CECA sector frees itself from a long period of public influence and returns to its liberal origins. In fact, by the mid-19th century, there were already corporate savings banks in Spain, with shares and dividends. Nevertheless, without renouncing, as they do not today either, their retail focus or their Social Work.

In summary, the entire Spanish banking market is now more capitalized and prepared to face challenges that would not have been successfully overcome without that structural reform. This has been evidenced by the maintenance of a substantial flow of credit to families and SMEs during the pandemic. Some of these new challenges are common to the entire Spanish economy, such as digital or environmental transformation. Others are specific to the financial system, such as designing new long-term savings products or Banking Union. Deep challenges that will also require innovative regulatory frameworks. We hope that, as with the Law on Savings Banks, the necessary consensus can be reached to successfully address them.