“Excessive concentration makes banks too big to fail”

The Governor of the Bank of Spain highlights the risks of a few companies gaining too much power in the market, although he distances his thoughts from a possible merger between BBVA and Sabadell.

Bank of Spain Governor Pablo Hernandez de Cos draws attention to the concentration of banking activity at a time when the country is witnessing a new episode of corporate transactions. In an interview given by EXPANSIÓN Deputy Director Salvador Arancibia at the V EXPANSIÓN INTERNATIONAL FORUM, the governor emphasized that “excessive concentration creates banks that are too big to fail and brings back memories of the financial crisis.”

De Cos wanted to make it clear that this “interesting reflection” was made outside of the proposal to merge BBVA with Sabadell, which the latter rejected. Likewise, it indicates that from a financial supervisory perspective, too much concentration is just as harmful as too little.

“Fierce competition, which results in businesses earning very low profits, even below the cost of capital, is a concern for the sustainability of banks,” explains the supervisor.

However, Spain is not experiencing a time of intense competition between banking institutions, and the degree of concentration has increased significantly.

“In 15 years we have faced a situation of increasing concentration of banking activity and, from a very low starting point, we have already exceeded the average of the largest countries, with the exception of the Netherlands,” details De Kos, who did not want to comment on the situation. in any way directly about the possible merger of BBVA and Sabadell or whether it would lead to excessive concentration.

Interest rates

As governor of the Bank of Spain, De Cos is also a member of the Governing Council of the European Central Bank (ECB), which will meet on June 6 in Frankfurt to presumably begin a cycle of interest rate cuts from 4%. 5% current.

This was confirmed by De Kos, in line with statements from other central bank monetary authorities, indicating that “June is the right time (to cut rates) if macroeconomic forecasts continue the patterns of March.” However, the Bank of Spain governor did not shed more light on the monetary institution’s next steps after June, highlighting “very high uncertainty that does not allow us to provide guidance.”

However, Spain’s representative at the ECB wanted to provide some clues as to its vision, pointing out that “the March forecasts, which suggested that the inflation target would be met, included a number of rate cuts that were being considered by the market at the time and that could serve as a guide to setting expectations productivity.” At the time, analysts agreed on three to four interest rate cuts this year.