Past Event

The Spanish financial crisis: Lessons for the European banking union

Spain is among the countries still recovering from the financial crisis. While misjudged investments were part of the cause, these past mistakes could offer lessons for the European banking union.

Date: June 9, 2016, 1:00 pm Topic: Banking and capital markets

Summary

See below for video and audio recording of the event

The event began with an overview of the report by the Elcano Royal Institute on the Spanish banking crisis and the possible lessons for the European banking union.

The researchers offered their analysis of the Spanish crisis and its causes, focusing in particular on credit expansion, wholesale inter-banking funding and poorly managed public savings banks. They also pointed out that the ex-post policy response came too late. While it was hoping for an automatic recovery that never came, it was a misguided attempt and eventually led to an even weaker financial system.

Continuing from this point, the discussion then concentrated on the lessons that can be extracted from the Spanish financial crisis. The main question here is, to what extent the potential policy measures could be taken to a European level to prevent such an episode from repeating itself.
Although banking crises occur from time to time and are often linked to relatively similar causes, i.e. financial euphoria, credit growth or real-estate bubbles, we do not seem to learn from them.

Once the crisis hit the Eurozone, the Spanish authorities encouraged mergers between healthy and troubled institutions. This led to a weaker domestic banking system which eventually had to receive public intervention. This also shows how the misdiagnosis partially worsened the economic crisis. Moreover, the Spanish example shows that even small saving banks can lead to systemic crises, especially when their supervision is inadequate. Last but not least, although bail-in measures are now in place and should enhance banks resilience to financial distress, a common fiscal backstop is needed to top up, in case bail-in loss-absorption capacity is not enough.

The conference concluded with several questions. First of all, it was asked whether the European financial assistance was needed at all, given its relatively small amount of 42 billion euros, representing around 4% of the Spanish GDP. Secondly, given the clear hints that the Spanish economy was delivering, seen by the rise in house prices and current account deficit, why did policy makers not try to address the situation?
Regarding the first question it was said that, although the relative amount was not high, it was probably also used as a political instrument for Spanish authorities to implement fiscal consolidation. Then, concerning the question about the delayed actions of policy makers, the speakers argued that it is always easier to ‘predict’ ex-post. However, since the existence of large current account imbalances within a single currency area without a fiscal union had no comparable benchmark, it was not easy to link these imbalances with the emergence of a housing bubble at that time.

Event summary by Jaume Martí Romero, Research Intern

VIDEO RECORDING


 

Relevant Reading

The Spanish financial crisis: Lessons for the European Banking Union | Miguel Otero-Iglesias, Sebastián Royo, Federico Steinberg

More Bruegel work on banking union

Schedule

Jun 9, 2016

12:30 - 13:00

Check-in and lunch

13:00 - 13:25

Presentation: The Spanish banking crisis

Miguel Otero-Iglesias, Senior Analyst, Elcano Royal Institute

Federico Steinberg, Senior Analyst, Elcano Royal Institute

13:25 - 14:30

Panel discussion and audience Q&A

Chair: Pia Hüttl

Stefano Neri, Head of Division Research Department , Bank of Italy

Speakers to be confirmed

14:30

End

Speakers

Miguel Otero-Iglesias

Senior Analyst, Elcano Royal Institute

Federico Steinberg

Senior Analyst, Elcano Royal Institute

Pia Hüttl

Stefano Neri

Head of Division Research Department , Bank of Italy

Location & Contact

Bruegel, Rue de la Charité 33, 1210 Brussels

Bryn Watkins

Bryn Watkins

[email protected] +32 2 227 42 88

Read about event More on this topic
 

Past Event

Past Event

Fiscal policy and rules after the pandemic

What are the possibilities for shaping the new fiscal policy?

Speakers: Zsolt Darvas, Maria Demertzis, Michel Heijdra and Katja Lautar Topic: Macroeconomic policy Date: November 24, 2021
Read about event More on this topic
 

Upcoming Event

Dec
9
14:00

How to deal with small banks: consolidation, tailoring and the fintech challenge

Small banks face multiple challenges. What structural changes are needed to tackle these pressures?

Speakers: Alexander Lehmann, Nicolas Véron, Xavier Vives, Anne Fröhling and Philip Evans Topic: Banking and capital markets
Read about event More on this topic
 

Past Event

Past Event

Covid recovery and the green transition: What can promotional banks do?

What is the role of promotional banks in financing the green transition?

Speakers: Sophie Barbier, Maria Demertzis, Ricardo Mourinho and Lucinio Muñoz Topic: Green economy Date: November 18, 2021
Read article Download PDF
 

Policy Contribution

European governance

Next Generation EU borrowing: a first assessment

The Next Generation EU programme is radically changing the way the EU finances itself and interacts with financial markets. This paper assesses the first design decisions made by the European Commission and the issuances that have taken place so far. It also outlines the potential risks and opportunities linked to this upgrading of the EU borrowing.

By: Rebecca Christie, Grégory Claeys and Pauline Weil Topic: Banking and capital markets, European governance, Macroeconomic policy Date: November 10, 2021
Read about event
 

Past Event

Past Event

How can we create more sustainable value chains?

There is an urgent need for GVCs to become more resilient and inclusive, and meet the net-zero challenge.

Speakers: Erik Berglöf and Alicia García-Herrero Topic: Global economy and trade, Green economy Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: November 10, 2021
Read about event More on this topic
 

Past Event

Past Event

Phasing out COVID-19 emergency support programmes: effects on productivity and financial stability

How can European countries phase out the COVID-19 support measures without having a negative impact on productivity and financial stability?

Speakers: Eric Bartelsman, Maria Demertzis, Peter Grasmann and Laurie Mayers Topic: Macroeconomic policy Date: November 9, 2021
Read about event More on this topic
 

Past Event

Past Event

European monetary policy: lessons from the past two decades

This event will feature the presentation of “Monetary Policy in Times of Crisis – A Tale of Two Decades of the European Central Bank."

Speakers: Petra Geraats, Wolfgang Lemke, Francesco Papadia and Massimo Rostagno Topic: Macroeconomic policy Date: November 4, 2021
Read about event
 

Past Event

Past Event

Microchips and Europe's strategic autonomy

Per microchips ad strategic autonomy.

Speakers: Piotr Arak, Alicia García-Herrero, Jay Lewis, Stefan Mengel and Niclas Poitiers Topic: Digital economy and innovation, European governance Date: November 2, 2021
Read about event More on this topic
 

Past Event

Past Event

Can climate change be tackled without ditching economic growth?

What will be necessary to achieve climate goals and keep growing?

Speakers: Francesco Starace, Simone Tagliapietra and Guntram B. Wolff Topic: Green economy Date: October 28, 2021
Read article
 

External Publication

European Parliament

Don't let up - The EU needs to maintain high standards for its banking sector as the European economy emerges from the COVID-19 pandemic

In-depth analysis prepared for the European Parliament's Committee on Economic and Monetary Affairs (ECON).

By: Rebecca Christie and Monika Grzegorczyk Topic: Banking and capital markets, European Parliament Date: October 21, 2021
Read about event
 

Past Event

Past Event

Monetary policy in the time of climate change

How does climate change influence monetary policy in the eurozone? What potential monetary policy measures should be taken up to address climate risks?

Speakers: Cornelia Holthausen, Jean Pisani-Ferry and Guntram B. Wolff Topic: Green economy, Macroeconomic policy Date: October 20, 2021
Read about event
 

Past Event

Past Event

A hybrid future of work

Addressing employers’ and employees’ challenges.

Speakers: Julie Brophy, Joost Korte, Laura Nurski, Renske Paans and Alex A. Saliba Topic: Digital economy and innovation, Inclusive growth Date: October 19, 2021
Load more posts