Appearance before the Economic Affairs and Digital Transformation Committee (Congress of Deputies) on 18 May 2020. and Appearance before the Parliamentary Committee for the Social and Economic Reconstruction of Spain after COVID-19 (Congress of Deputies) on 23 June 2020  13  gains and, once more, will have to make more intensive use of new technologies to continue to cut their operating costs. Furthermore, there is room for some consolidation in the sector which will contribute to making banks and the system, as a whole, more resilient. Non-bank financial sector  Apart from its effect on the banking sector, this crisis is also having a considerable impact on the valuation of many financial assets, and on their volatility. Initially, there was a major stock market correction and a sharp increase in equity and bond volatility. Subsequently, following the reaction of global monetary and fiscal policies, stock markets began to recover and volatilities to decline. In fact, in both the United States and the euro area, some market valuation measures, such as P/E ratios, have returned to historical highs, potentially indicating a certain disconnect between the recent rapid and significant recovery in financial markets and the more moderate behaviour of macroeconomic data and the concerns over corporate sector weakness. In this respect, despite the slowdown in recent months in the rate of credit rating downgrades, following the sharp increase between March and May, the spreads on highyield corporate debt (i.e.
Higher provisioning and, especially, the non-recurring adjustment to goodwill, both as a result of the expected downturn in economic conditions on account of the pandemic, were the main causes of lower profits. The losses were concentrated at the two banks with the largest international presence but profits decreased by two thirds at the other banks. In any event, banks’ recurring business has only been affected modestly to date and this is being offset partly by an adjustment to operating expenses and, consequently, they continue to gain in efficiency. 11  Therefore, the price-to-book (P/B) ratio — which compares listed banks’ market capitalisation and their book value — contracted notably in Spain, as in other European countries, by declining to levels of around 0.4, although it subsequently recovered somewhat. 12  One way of illustrating the risks to financial stability posed by the current episode is through simulation exercises which assess prospectively banks’ resilience to adverse macroeconomic scenarios. Accordingly, the ECB conducted a so-called “vulnerability” analysis – to underline their limitations compared with the usual stress tests – in order to measure European banks’ resilience to the strains triggered by the coronavirus. The results published last July show some of the risks identified.7 Specifically, based on these results, the euro area banking sector overall is positioned to withstand pandemic-induced stress, although the reduction in banks’ solvency under the most adverse macroeconomic scenarios would be significant. Furthermore, the results of this exercise show significant heterogeneity across banks.