Global banks’ misconduct costs have now reached over $ billion – capital that could otherwise have been used to support up to $ trillion of lending to households and businesses. The FSB’s misconduct action plan addresses these issues through: (i)  improvements to financial institutions’ governance and compensation structures to align better risk and reward;  (ii)  new global standards of conduct in fixed income, commodities and currency markets; and  (iii)  reforms to major financial benchmark arrangements to reduce the risks of their manipulation. Authorities cannot and should not try to legislate for every circumstance, watch every transaction, or anticipate every market innovation. So while fines and sanctions have roles in deterring misconduct, they will not, on their own, bring about the cultural change we need. In the view of UK authorities, we must move from an excessive reliance on punitive, ex post fines of firms to greater emphasis on more compelling ex ante incentives for individuals, and ultimately a more solid grounding in improved firm culture. In the UK a significant proportion of variable compensation for senior employees now must be deferred for a period of seven years. This ensures that it can be clawed back over the time scale it generally takes for conduct issues to come to light.
On the downside, Spanish banks have higher expenses from asset impairment and provisions than euro area banks. The profitability of the Spanish banking system has a significant cyclical component. In the past economic crisis profitability contracted more sharply than in other jurisdictions: in 2012 it entered negative territory, standing at –21% in terms of equity and at -1.2% in terms of assets according to the consolidated financial statements, which include not only business in Spain but also international exposures. The main reason for this was the higher losses on the loan portfolio associated with a significant rise in defaults, particularly in the Spanish construction and real estate activity sectors, where banks had an excessive concentration. 5/29  Subsequently, the profitability of the Spanish banking system has tended to recover in recent years, basically because impairment losses have decreased as loan quality has improved. A fundamental factor has been the decrease in non-performing assets, including both non-performing loans (NPLs) and foreclosed assets. Turning to the more recent information, in the first three quarters of 2019 the net profit of Spanish credit institutions attributable to the controlling company decreased by 18%. The decline in profits is due to a significant fall in gains on financial assets and liabilities (-23%), accompanied by an increase of nearly 4% in operating expenses. Thus, the fall in net operating income amounted to 1.1%. The increase in operating expenses in the past year was largely due to staff reduction agreements at some banks.