To try to explain why Spanish institutions have passed the tough test posed by this unprecedented crisis, I shall use the phrase recently used by Jacob Frenkel to summarise, humorously and clearly, the problems currently affecting many American and European banks. What has happened, according to Jacob, is that in the balance sheets of these institutions “on the right side there’s nothing left, and on the left side there’s nothing right”. In other words, on the assets side everything is damaged, while on the liabilities side, because some banks have financed themselves at such short maturities, the financing has vanished into thin air. This simplification of reality is highly illustrative of the situation that many international banks have got themselves into, but it also explains why the Spanish banking system has escaped the crisis. On the liabilities side, things are different in the Spanish banking sector. Admittedly, Spanish banks have been very active in seeking financing on the international wholesale markets. But they have focused on the longer maturities. This has given them greater peace of mind with regard to the structure of their liabilities, despite the fact that the cost has been higher than it would have been if they had made more use of financing at the shortest maturities. Spanish banks’ recourse to wholesale markets has taken the form of various instruments, including asset-backed securities. However, Spanish securitisation bears little resemblance to that which is currently proving highly problematic. First, because of the high quality of the securitised portfolios.
A credit slowdown stemming from the weakening of the cycle, due to its obvious effects both on the solvent demand for credit and on the riskadjusted supply by institutions, would be another matter entirely. For their part, institutions need to assume fully the new reality in which they will have to operate in the coming years and address it intelligently and decisively. This will require an adjustment of their balance sheets, so that credit flows to the real economy while attention is paid to the greater risk of default which will have to be correctly managed. At the same time, on the liabilities side, it will be necessary to continue strengthening the deposit base as far as possible, since the capacity to finance banking activity through the wholesale markets will be more limited. This adjustment of bank balance sheets must be accompanied by strict cost controls, which are the main mechanism for limiting the impact of the new environment on bank income statements. The economies of scale offered by bank consolidation (widely aired in the media) is one way to tackle this rationalisation of cost structures. In any event, irrespective of the strategy that each institution may decide to adopt, the result should be one of greater efficiency. Finally, if we have to face a period of slower growth in banking activity, with greater uncertainty and lower profits, banks should also endeavour to strengthen their capital base.