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The privatisation of Spanish savings banks

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José Francisco Bellod Redondo. Doctor in Economics. Research Group "Economy, Planning and the Environment" at the Polytechnic University of Cartagena

Savings banks have been the silent victims of the drastic financial reforms implemented since 2009 as part of the strategy of the Spanish governments to tackle the crisis. The data are eloquent enough: if in 2008, the savings banks sector was composed of forty-six entities, there are currently only five.

 

Can we talk about privatisation? Undoubtedly: savings banks have not been liquidated, but have changed legal status due to government agencies and the Bank of Spain, in a joint effort to bring them back into the field of private banking in the strictest sense. Keep in mind that many of the savings banks now disappeared were founded largely with public money from the respective county councils, so were public entities since their inception. Nevertheless, whether the money came from public or private sources, their distinctive feature was their non-profit status, hence the legislation would force them to reinvest the profits every year, either in increasing equity, or in Community Projects (OBS), excluding in any case the payment of dividends.

The successive democratic governments were reforming the functioning of the savings banks while preserving their non-profit nature: mandatory investment coefficients were removed, they were allowed to open branches outside their home province and their financial operations were liberalized, allowing them to do the same type of banking as traditional banking.

The disappearance of the savings banks was not an innocent process

With the implosion of the housing bubble (1999-2007), the bankruptcy of Lehman Brothers (September 2008) and the crisis of Greek Finance (June 2010), the Spanish credit institutions suffered a sharp deterioration in their balance sheets. According to the analysis of the Bank of Spain, the sector was clearly oversized: there were too many entities, branches and employees.

Initially the government tried to boost so-called "cold fusion" (institutional protection schemes), but the resounding failure of the initiative led to the creation of the FROB, the state agency responsible for intervening and promoting the absorption of savings banks by injecting non-repayable money and selling them at bargain prices to traditional banks. Another formula used has been to create traditional banks to which savings banks under state intervention have transferred their financial business, along with with significant financial injections from the FROB. To this end, in July 2012 the Government of Spain signed a request for rescue with the "troika" amounting to 45,000 million Euros, expandable to 90,000 (officially called "Memorandum of Understanding").

The paradox is that the privatisation effort has led to the nationalization of three of the big savings banks, whose black holes were so big (Bankia, Catalunya Banc and Novagalicia Bank) that the FROB not yet been able to find a bank to acquire them.

The disappearance of the savings banks has not been an innocuous, neither for the financial sector itself, nor the
economy, nor for Spanish society.

The first consequence of privatisation has been a strengthening of the oligopolistic nature of the Spanish financial sector, as evidenced by the Herfindahl index prepared annually by the European Central Bank: our financial sector is much more concentrated than that of France, UK, Italy, France or Germany. This necessarily results in higher profit margins and therefore higher interest rates. However, it is not just a matter of price and an expected deterioration in the quality of service offered to citizens and businesses: the reform has eliminated 13,637 branches throughout the Spanish territory, have destroyed 60,416 jobs in the sector of credit institutions, have decommissioned 10,543 ATMs and there are only 83 entities from 2008. The ratio "inhabitants / branch", a key indicator of service quality, has deteriorated sharply, rising from a value of 1,002 inhabitants / branch in 2008 to 1,442 at present.

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