The Balance Between Reformism and Stability

Two years after the Spanish GDP entered a path of recovery, the current fiscal year presents itself as a test of resilience for our economy. The forecasts published by Funcas are positive. It is expected that this year Spain will register a growth of 2.8%, supported by several factors: private consumption, strong export performance, investment in capital goods and other products, as well as in construction, particularly residential. This figure is slightly lower than the growth rate of the previous fiscal year, 3.2%, but it will allow the continued path of recovery to improve employment figures. This last point is crucial for stability, and Funcas expects a decrease of two percentage points, which would place the unemployment rate at 20.2%.

Reaching this point has required the effort of the entire society. A significant number of reforms have been necessary, some designed and executed at the European level, and others with a national dimension. 2016 begins with great instability in the markets and waiting for the formation of a government, which could delay decisions to continue unleashing the full potential of the Spanish economy, and consequently, the fulfillment of these forecasts.

For the sector of credit institutions associated with CECA, 2015 has been a decisive year for establishing a definitive legal framework for banking foundations. The various regulatory developments by the Bank of Spain and the Ministry of Economy and Competitiveness have allowed the conclusion of the process initiated with the publication of Law 26/2013 on Savings Banks and Banking Foundations.

These advances in the regulatory sphere have paralleled those made in the restructuring and consolidation process. The reduction of installed capacity, a significant strengthening of solvency levels, which average at 12.4%, and the remarkable effort in cleaning up and provisions, equivalent to 14% of GDP from 2008 to 2014, allow us to assert unequivocally that the Spanish banking sector is prepared for its integration into the framework of Banking Union.

The reform of the Spanish banking sector and, specifically, the improvement of the legal structure of Spanish Savings Banks has been another chapter of the reformist drive initiated in the wake of the economic crisis. This chapter has closed, but many others remain open, the implementation of which will be part of the challenges that banking entities will face this year. The regulatory calendar in 2016 already shows a heavy agenda.

The advancement of Banking Union itself is one of the main challenges. Once the Single Supervisory Mechanism is activated, entities are subject to a new supervisory approach, less accounting-oriented and more prospective and global, whose maximum exponent is the SREP (Supervisory Review and Evaluation Process). This involves a dialogue between each entity and the supervisor to address even aspects related to strategy and business model.

Solvency Framework Additionally, the pillar focused on the resolution and recovery of entities has been addressed. By the end of last year, the first contributions to national resolution funds were made, and this year the bail-in model came into effect, which establishes that private creditors can absorb the losses of an entity in the case of resolution. The concretization of the third pillar relating to deposit guarantees, which is being driven by European authorities, remains pending discussion among EU members.

The improvement of the solvency framework for entities continues to be a concern of international organizations. During this period, new requirements for macroprudential capital buffers will be implemented (the systemic entities requirement, the capital conservation requirement, and the counter-cyclical requirement). Furthermore, the search for a gradual harmonization of capital ratios continues, which will necessitate a revision of the process for approving internal risk models across EU member states, and has also propelled the review of the calculation methodology for the standardized approach.

On the other hand, as a result of the digital transformation of the economy, the European Commission is working on new data protection regulations and the Digital Single Market. Digitalization is seen as one of the major levers of financial business, and reasonable and prudent regulation is necessary to ensure proper service to banking clients.

Once the path of economic recovery has begun, entities are setting as their goal a return to reasonable levels of profitability, and to achieve this, there is no doubt that the regulatory framework must stabilize. Anything that ensures the stability of the economy and good risk management is welcome, but we must not lose sight of the fact that the growth of banking business facilitates access to financial products for the entire population and prevents banking exclusion in this country.

In summary, the current context presents challenges, one of which is the application of reformism capable of addressing the genuine problems of society. The balance in this matter, as in many others, is key. An effective regulatory framework must be able to prevent future crises, but at the same time, it must be efficient enough not to hinder recovery processes.