Thursday, August 05, 2010

The Professionals Move Into Spain's Cajas

A law changing the regulations concerning Spain's savings banks - the cajas - was recently introduced by the government very quickly and quietly. It's a piece of legislation that could well end up changing many of these local savings banks beyond recognition, and interestingly enough also attracted the support of the Partido Popular; presumably because they saw no electoral disadvantages in supporting it. The most important thing about the legislation is that it effectively permits the cajas to more or less transform themselves into banks, with private investors being allowed to take a significant stake.

The new law has been sold with the idea that it brings to an end the dreaded political control of the cajas, which is what gets the blame for the sad state in which many of them have been left as a result of the crisis. It could possibly also have come as something of a blow to EA of Madrid, who had invested so much time and effort in securing political control of Caja Madrid. Now it's certainly the case that some cajas have not benefitted from the pressure to support grandiose projects which had the support of the local politicians. A case in point is the airport near Ciudad Real which I posted about recently. Despite these kind of cases, the main problem for the cajas has been their exposure to an economic model based almost entirely around the construction bubble.

Then of course there is the doubtful proposition that they will benefit from being transformed into more 'professional' banking outfits. Choose your examples with care, the history of how the UK's Northern Rock was transformed from a solid regional building society into a massive financial disaster in the hands of the professionals should be compulsory reading. It's a disaster that is still being paid for, but in that funny way that seems to happen so often these days, it's not the professional bankers concerned who are having to dig into their pockets for the rescue operation. In reality it matters little whether the measures improve the security of the banking system for people whose savings are held by them, this is yet another market pleasing measure and any benefits for the wider society are entirely coincidental.

It's curious that at a time when many are seriously asking whether we need to break up the larger banks, Spain's financial sector is likely to become ever more concentrated. The cajas may have their problems, but they are also a functional part of Spain's economy at regional level. At a time when more and more banks seem to regard lending money to individuals or companies as an optional add-on to their core business, it's not going to do anything for Spain's recovery prospects if the cajas go down the same road. A far more meaningful reform would have taken on the notion of them being playthings of regional politicians, but preserving their important role in the local economy for savers and borrowers. Dream on.

Amazing though it seems, I was reading yesterday that the British Institute of Economic Affairs was proposing that the financial services sector should be 'self-regulating'. At this stage of the game you can't help wondering whether this is a deliberate attempt at satire? Perhaps some generous private sponsor could be persuaded to fund a safe, padded residence for all those who proclaim that the current crisis was caused by excessive regulation.


Keefieboy said...

I can't begin to tell you how much I despise banks. What other business in the world can take your money without sending you a bill first and having you approve it? Thieving bastards, all of them. Grrr.

Andrew said...

The Cajas are short of capital - Spanish tax payers have put €15billion into the pot already. 5 failed the rather pathetic stress test and some were close.

Our local pueblo (7000 pop) has 9 banks, 9 estate agents, one butchers and no greengrocer. This includes Caja Madrid! 5 hours drive from HQ.

Certainly a sector that needs sorting out. Protecting the regional nature of the good ones is worth doing and I understand that governance can only be 50% for outsiders.

So what other solution than some 'private sector' money do you suggest? TVA at 25%?

ejh said...

Perhaps some generous private sponsor could be persuaded to fund a safe, padded residence for all those who proclaim that the current crisis was caused by excessive regulation.

Well, most of them have pads in safe residential areas.