“Regulators and supervisors are telling us that they are comfortable with the levels of capital the industry has been putting up.” But at the same time, he recalls that there are multiple regulations that will be implemented in the coming years, and uncertainty will remain until this process is complete. “Basically all these efforts are leading to some harmonization of internal models and some cleaning up of the methods used by the banks in order to put up capital. And this is still open. We don’t know yet what will be the end game of this, but it will certainly require more capital, in particular for some banks using business models that have possibly been very lax in the way they have calculated their capital needs,” says José Manuel González Páramo.
The head of Global Economics, Regulation & Public Affairs at BBVA assures that Spanish banks “are facing regulation like anybody else.” This is compounded by low profitability from low interest rates, the delayed impact of the real estate crisis, banks’ eroding reputation – although he added that this is a common problem across the financial sector – and the impact of the digital revolution on business. “This is the perfect storm,” he argued. When facing these challenges, some banks like BBVA benefit from being diversified in terms of both business and geographically.
All of this is compounded by the fact that most mortgages in Spain are indexed to the Euribor, currently below zero, which has a rapid and clear impact on balance sheets. When facing these challenges, some banks like BBVA benefit from being diversified in terms of both business and geographically.
José Manuel González-Páramo also offered his assessment of the health of European banks and some institutions’ capital needs. “None of the problems that we see today are entirely new. Some of them were spotted on the occasion of the stress testing and the Asset Quality Review done by the ECB at the end of 2014. So after two years of very low rates in pinching profitability, it is not surprising that some banks have gotten to the point where they need to raise capital or address longstanding problems.”
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