The Bank of Spain asks the bank to use capital buffers for impairments

The governor of the Bank of Spain, Pablo Hernández de Cos, has stressed that the use of capital buffers by entities is “adequate” to recognize impairments and continue to provide solvent credit to families and companies.

This was stated by Hernández de Cos during his opening speech at the Europa Press Information Breakfast, in which he recognized that the impact of the pandemic has not yet been fully manifested in the balance of the banking sector, given that it continues to benefit from the various public support measures.

In this line, he has ensured that the entities will have enough time to meet the capital requirements again, adding that the start of the process will never be done before the main effects of the coronavirus crisis have dissipated.

“The banks will have the necessary time to rebuild the capital buffers if they have used them,” insisted Hernández de Cos, who considers that this tool is adequate to face the new scenario.

Likewise, he recalled that they have been recommended to act with extreme prudence in dividend distribution policies, with the aim that the banking sector can continue to be part of the solution to the crisis through the granting of credit to families and Business.

The governor of the Bank of Spain has stressed, in turn, that financial institutions must contribute to the reactivation of the economy, which will require the proper functioning of the credit channel.

In the same way, the supervisor has indicated that the use of capital buffers by entities is adequate to recognize the deterioration of credit and continue to provide solvent credit to families and companies.

In any case, it has ensured that the banking sector has shown a “remarkable” resistance, supported by the improvements both in the quality of its balance sheet and in its solvency in the last decade and in the forcefulness of the economic policies applied since the beginning of the crisis.

“The crisis has only highlighted the importance of having a healthy banking sector, with sufficient buffers to absorb unexpected risks. We must ensure that the resistance of the sector is maintained with respect to the new risks that emerge”, Hernández de Cos pointed out. .

Banking Union

To this end, the supervisor has deemed it necessary to complete the Banking Union with the approval of a fully mutualized European deposit guarantee fund, which would make a decisive contribution to guaranteeing financial stability in the euro area both in the coming months and in a future. medium-term horizon.

Likewise, the deepening of the Capital Market Union project has pointed out that it is “crucial”. In addition, it has made it a priority to analyze the adequacy of the European bank resolution and liquidation regulations to a hypothetical systemic crisis, as well as to create a common procedure for the administrative liquidation of entities.

The governor of the Bank of Spain has seen fit to recall that the implementation of the completion of the global Basel III reforms is still pending. “The objective is to standardize the calculation of risk-weighted assets between entities,” he remarked.

However, beyond these improvements, banks must also commit to the correct assessment of environmental risks and their incorporation into portfolio management, something that the supervisor “will follow closely.”

Regarding technological developments, the risks associated with cyberattacks or dependence on external service providers stand out, as well as those derived from increasing competition from technology companies, which can become disruptive.

Traditional regulation

“The implications for prudential authorities are important: we must maintain proactive supervision, since the traditional regulatory framework may not be enough; we will have to question the regulatory perimeter, so that the usual mantra of ‘same activity, same risks, same rules ‘be really operational, “he added.

Along these lines, it has indicated that the governance of the information that companies have about customers is a particularly important issue. “It seems reasonable that, if it is considered necessary that this information be available to all operators, such an obligation does not have exceptions, and that it is clear what its scope is, always respecting the rights of customers,” he added.

Reduce costs

For the Bank of Spain, BigTech also exerts pressure on the profitability of the sector, already weakened by the impact of the pandemic and by the evolution after the global financial crisis.

In order to improve this situation, he stated that entities should deepen their efficiency gains, reducing costs and using new technologies more intensively.

In particular, it has indicated that they have to improve the use of the information they have, which allows them to improve the business model without increasing the risk profile.

In addition, it has stated that consolidation processes can also be a useful instrument, although an evaluation of the merits of each proposal is necessary, in particular in relation to its impact on financial stability.

In this sense, the government of the Bank of Spain has added that European transnational operations would be “particularly positive”, since they would allow deepening the Banking Union.

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