Last December marked the tenth anniversary of the publication of Spanish Law 26/2013 on Savings Banks and Banking Foundations. A text approved by a very fragmented Parliament, but one that was aware of the extraordinary moment it was facing and which managed to forge a very broad consensus.

It is true that this (or a similar) legislation should have been introduced earlier. But if we look back to 2008, we can see that, unlike what happened in some of our neighbouring countries, the Spanish financial system withstood the first wave of the US subprime crisis better, largely thanks to a business model focused on retail banking, with no exposure to so-called toxic assets.

As a result, the pending structural reform of the savings banks was delayed. However, imbalances in the real estate market and unsustainable public and private sector indebtedness meant that the subsequent impact of the international financial crisis was greater in Spain. The result is well known to everyone: a severe economic recession that led to a rise in unemployment that triggered a surge in non-performing loans, affecting less prudent credit institutions with a higher concentration of risk in the real estate segment.

At this juncture, the weaknesses already present in the legal structure of Savings Banks, designed in 1977 and 1985, became more evident. In particular, the inability to increase their capital through equity (like any other bank). The only formula for increasing equity was the retention of profits, which was unfeasible in that context. In addition to helping to reinforce their solvency, a law was needed to improve their governance, to comply with new international standards and to introduce requirements regarding the professionalism and suitability of the members of their governing bodies.

The arrival of Isidro Fainé at the Association of Savings Banks (CECA) favoured a sector-wide reflection and the preparation of studies that led to the drafting of a new regulatory framework, designed by technicians from the Ministry of Economy and the Bank of Spain. The draft bill was enriched with the mandatory legal opinions and then, in the houses, the bill managed to secure the agreement of all the parliamentary groups (left-wing, right-wing and nationalist): only 13 votes against, out of 350 MPs!

This robust parliamentary agreement provided the impetus for a commendable implementation effort. The employees and executives of the CECA member entities were the driving force behind a profound transformation of the system. A complex, silent task, which also took place under a certain degree of stigma, which was somewhat unfair considering that the people involved were either new professionals or precisely those who had successfully overcome the difficulties of the crisis.

A decade after its adoption, it is time to take stock of the law's contribution and its implementation. In a context that was not conducive to the banking business (ten years of extraordinarily low or negative interest rates), the new law made it possible for these entities to merge into larger and more solvent groups, and finally placed the new banks resulting from this process on an equal footing with other credit institutions in terms of their ability to recapitalise, access to and scrutiny of the securities market. But more importantly, Obra Social, one of the hallmarks of the sector, has been preserved. Through the new foundations (ordinary or banking foundations, depending on the percentage they hold in the capital of the new banks), this social return has been fuelled year after year by the dividends obtained from their shareholdings. Investment in Obra Social by CECA's member entities in 2023 totalled €850 million and reached 31 million beneficiaries. Behind this figure are increasingly effective projects in research and education or social projects such as employment integration, the fight against child poverty or the provision of palliative care.

Banking foundations, in addition to being professional managers of this Obra Social, have proved to be an ideal shareholder for banks. A long-term, deep-rooted shareholder, which favours the sustainability of lending activity and, therefore, financial stability. With the 2013 law, the CECA sector was freed from a long period of public sector influence and returned to its liberal origins. In fact, corporate savings banks, with shares and dividends, already existed in Spain in the mid-19th century. Mind you, without relinquishing their retail focus or their Obra Social work, as is also the case today.

In short, the Spanish banking sector as a whole is now better capitalised and better prepared to face challenges that, without that structural reform, it would not have been able to successfully overcome. This was evidenced by the fact it continued to provide a strong flow of credit to households and SMEs during the pandemic. Some of these new challenges are common to the Spanish economy as a whole, such as the digital or environmental transformation. Others are specific to the financial system, such as the design of new long-term savings products or the Banking Union. Profound challenges that will also require innovative regulatory frameworks. We hope that, as in the case of the Savings Banks Act, the necessary consensus can be reached to tackle them successfully.