The Spanish Contribution to the International Banking System

Jaime Caruana, former governor the Bank of Spain, has been named general manager of the (BIS) acronym that responds to "Bank for International Settlements." He will work in Basle in the organism for Central Banks, starting in this April, after leaving his position in the IMF.

I believe that this appointment is very significant, in honor to the work carried out by the Bank of Spain, and their different governors. While other central banks have serious problems with their national banks, Spain has won international prestige for having managed the bank regulation well. The Spanish contribution, primarily by means of public servants, should, however, also be of ideas.

As the months go by, it becomes more and more evident that the banks have a great responsibility in this crisis, even more than the national authorities, for not containing the risks by means of clear rules and the international entities for not avoiding the infection.

Basically the Spanish ideas are two; the contracyclical measures and the conservative provisions for insolvencies. These measures were not understood or they were seen as exaggerated, in the rest of Europe. Concretely, the words of the ex-governor Luis Ángel Rojo himself, summarized the situation well: "I exposed them in the European Central Bank [ECB] and they didn't pay me any attention, except France that was doubting it. They thought that they were excessive, that things were not so bad as to adopt so tough measures, And well, there are the results". The full article in spanish is in:  http://www.elpais.com/articulo/economia/Greenspan/FMI/BCE/han/funcionado/bien/elpepueco/20081019elpepieco_6/Tes

Aside of the problems of CCM Caja de Ahorros (a public regional lending institution) the spanish banking system is resisting well this long crisis.

The BIS in the past warned in advance of the systemic risks in which the banks were incurring (later well-known "subprime" loans).  Therefore Caruana and his Spanish experience, together with his contacts in the IMF can be perfectly appropriate for the position, and this way achieve influence.

The ex-governor of the Bank of Spain between 1992 and 2001, Luis Ángel Rojo, is usually recognized for the merits of having introduced the pattern for supervision and control along with his colleagues from the Spanish Central Bank over the years. The measures applied are: anticyclical provisions that were finally called statistical provisions; in opposition to that, the Spanish banks could invest in mechanisms that accumulated indebtedness and were located outside of balance, as the SIV or the "conduits." As for example the British banks. Thanks to these preemptive measures, the Spanish banks avoided being significantly exposed to the international toxic assets that have originated the subprime crisis.

Also the prestigious British magazine The Economist exalted the virtues of the Spanish pattern affirming that: "very few regulating entities emerge of the crisis with a good image: the North American didn't see the poison of the subprimes; the German didn't notice the gigantic assumptions of risks outside of balance of some entities; the Swiss didn't detect the chancy investments of UBS and Credit Suisse, and the Briton didn't  detect  the crisis of Northern Rock until the savers panicked. In Madrid, on the other hand, a sensation of satisfaction prevails, thanks to clear policies, fixed in the last years by the regulating entity: to hinder the distribution of risky products outside of balance without provisions and the anticyclical endowments that demand  that provisions to be made for part of the debts although they are not default".

The paradox that exists now, is that the international regulatory scheme is against these anticyclical provisions. For that reason, adds The Economist, "the other regulating entities are now beginning to notice what the Bank of Spain is doing", it warns that "it would be ironic that Spain was forced to change its melody exactly when other countries begin to hum it." The Bank of Spain requested, a redefinition of the international regulatory scheme, but still without success.

In Spain many ideas exist, as well as brilliant men to spread them. What sometimes lacks, is selling them sufficiently well.