The financial sector before, during and after the crisis
Speech by Pablo Hernández de Cos, Governor of the the Bank of Spain, at the closing of the eleventh edition of the "Spain Investor Day CEO Conference", in which he analyses the situation of the Spanish and European financial sector in the face of current crisis.
The intervention of Pablo Hernández de Cos, Governor of the Bank of Spain, highlighted the importance of maintaining a resilient financial sector, before, during and after the Covid-19 crisis:
- The resilience of the banking sector must be generated before the crisis: The governor positively assesses the international financial reform of recent years that has allowed Spanish banks to significantly reinforce their level of solvency: The sector's ordinary capital (Tier 1) grew by 35% from 2007 levels until just before the crisis.
- The resilience must be maintained during the crisis: In his opinion, Spanish banks should continue anticipating provisions for future credit insolvencies as they have already done during the first nine months of the year. This cautious approach in current uncertain times has to do also with the recommendation to limit the distribution of dividends, which according to the Governor "will be valid until the end of September 2021 and, at that time, if there are no significant adverse circumstances, the intention of the European Central Bank is to repeal the recommendation".
- And also after the crisis: Pablo Hernández de Cos highlights four aspects that will be essential from now on:
- To Implement the global financial regulation that has been delayed during the crisis (Basel III) and evaluate it in view of lessons learned.
- To respond to the new emerging risks: Risks associated with the transition to a more sustainable economy and with the profound transformation of the entire economy towards a more digitalized world (cyber-attacks, dependence on suppliers and new players). Regarding the latter, and according to the governor, “it will be necessary to question the regulatory perimeter, so that the usual mantra of «same activity, same risks, same rules» is really operative".
- Improve the profitability of the sector: Continue to deepen efficiency gains to improve the low profitability of the banking business, reducing costs and using new technologies more intensively. In his opinion, the consolidation processes of the Spanish sector can be useful in this regard.
- Finally, the governor commented on the “need to persevere in a European response to this crisis, also in the financial sector”, completing the banking union, to continue to face it effectively.