Miguel Ãngel Fernández Ordóñez (Madrid, 1945) talks with his extensive curriculum in the machine room of the Spanish economy by guide. He was in the time of Felipe González. And in that of José Luis RodrÃguez Zapatero. Governor of the Bank of Spain in parallel to the financial crisis of 2008, in 2020 he concluded that banks are our worst nightmare. And now they come back bad given.
In 2008 there was the biggest financial crisis since 1929. And today, after the fall of Silicon Valley Bank, Credit Suisse and others, it once again flies over its spectrum. What was done wrong then, what is still being done wrong today?
What is done wrong is the diagnosis, which has always been to see no alternatives to ‘oops, the market has failed; we have let the bank do things backwards; the state has to intervene. This is said even by libertarians [ultra-liberals, editor’s note] like Alan Greenspan. The diagnosis is to put more State and more protection because no other alternative is seen. I did not see an alternative back in the day and nobody saw it. Now it would be more difficult because at the same time as the 2008 crisis, Satoshi Nakamoto brought out Bitcoin and for the first time it was possible to have digital money.
Is digital money your alternative?
If banks are not forced to have 100% deposit reserves, we will have the same problems again. Here the only safe asset is the money issued by the State through the Central Bank, which does not change in value. There may be a monetary policy that changes it in terms of inflation, but if you have 100 euros, you have 100 euros. The bank deposit is an accident in history that at the time was truly exceptional because it gave the possibility that the money was not physical: it was no longer necessary to take it like Marco Polo to China, pay and return with another. And this is not lost with the digital currency of central banks or CBDCs.
There is already a digital yuan…
The dollar will have to be digital. China is spectacular and really one of the best experiments. In large payment companies, China has been around Europe and the US for about five years. But then, to avoid dominant positions, competition is an essential element and China is still behind in this. In the US, moreover, they still have the rule of law and that is very important. Chinese no. Let’s go an unknown money? Another thing is that the US is currently making decisions that are absolutely contrary to the market economy, such as helping if you buy an electric car produced in the country. It smells like a Francoist. And here in Europe immediately the French and German companies put equal pressure on the Commission.
With what consequences?
For countries like Spain it is a total disaster. There is no money while others are delighted rubbing their hands. And again it’s a misdiagnosis like we did with the previous financial crisis. On nuclear issues, the only way we have to order the world is at the table. If one leaves the table, we enter spirals that were terrible before the Second World War. It is true that now he still does not have that intensity, but he does not think that the other is going to react.
Meanwhile, are banks still our worst nightmare?
Yes. At the Bank of Spain I lived through the crisis, which was catastrophic for all countries but for Spain in a very particular way. When I left him in 2012, I felt compelled to see what had happened. I was not convinced by any of the explanations, as is the case now that regional banks in the US have failed, and it is said that ‘bankers are incompetent’, that ‘supervisors have not heard’ or that ‘regulators do not the correct rules.
And not?
I think that when everyone is a disaster, maybe the system is not good. It reminds me of when I visited communist Germany in 1987. One went to the theoretically wonderful State supermarket and there was nothing. It was a disaster. And they kept saying: ‘it’s because of the supermarket manager’, ‘it’s because of the minister who has done I don’t know what’… No. The money we use, the bank deposits, is money issued by private banks with instability problems. Until now they are helped by protecting them with deposit insurance. It works reasonably well. But it may not work. And then we have the banking crisis, which we should call payments.
Are we already at a critical point?
We have seen it with Silicon Valley Bank: payments are very important and it is a banking monopoly; there a lot of companies had millions to pay their salaries and suddenly they don’t have them. What immediate reaction does the State have? The Federal Reserve came in. That is, it will have absolute financing; all deposits are insured. But the risk has gotten worse. It turns out that before, in the 19th century, the capital of banks was 30-40% of total assets and now in Europe and the US they are less than 10%. Basel III makes a measure although it is not true: if one goes to the balance sheet and divides the capital by this it is derisory. It can break the whole system.
Do the dilemmas of the past return?
65,000 million euros cost the bank rescue in Spain, a tremendous thing. Although this reaction makes sense. The banks, the deposits, are a kind of nuclear power plants that if they work well, fine, but if not, they are Chernobyl. If they are neglected, they are companies of mass destruction and therefore all these protections or putting in taxpayer money makes sense. Nobody would think of putting money knowing that it is going to be invested in 20 years and that they may not see it. If we don’t know that there is going to be a third party that insures deposits, which is the Central Bank, nobody would interfere. And curiously, digital money issued by the Central Bank exists. What’s happening? Now only banks can use it.
In the Spanish case, with the financial crisis, the big banks did not fail and one of the solutions was bank concentration. Has the danger of crack grown with this, or the other way around?
The danger has increased, let’s say, by great. If they fall, of course, it is tremendous. Not on the other hand. By reducing competition, banks have a better chance of making profits, of not having problems, even liquidity. But hey, it’s the same as always: all the reactions to protect the banks have been more privileges and protections, regulation, mergers.
The banking sector seems, according to his account, untouchable. Is it your original sin?
What can you do? When the crisis ends, Barack Obama points to the Financial Stability Forum. I was in the advisory group and we created this thing that I now see as outrageous, Basel III, because it is telling a businessman how to take risk; what it has to do. And it makes sense, because the one who controls is the one who is playing it. But the problem is the privatization of profits and the socialization of losses. It does not happen in the rest of the sectors. I propose the digital euro, which is money while bank deposits are promises that I will pay you that money. The money cannot fail and the promise can.
Does it mean that banks, as we know them, are doomed to disappear?
Banks are companies that will know how to transform, always with the help of the State. But it is one thing to help two to disappear and no longer have the problem, and another thing to be helping so that the problem continues.
The Federal Reserve rejected a bank for being too safe: its reserve was 100% of deposits. Today, with everything that is being seen, do you think it would be rejected again?
They haven’t made the decision at all, but why is it happening? The other thing has not been resolved, and if I leave them to these… You have to separate the money from the risk. In telecommunications they were the service networks. In air transport, the airports of the companies. And as long as you don’t, I sympathize with everything central banks do helping them.
In Spain there is again a debt that is going to more. And there is also more public intervention and more public spending, for example in the field of housing. Can it be a problem like it was in the past?
What we have is a debt problem, especially public debt, in almost every country in the world. But for me the problem is that these policies, in the same way that they pull public revenue despite having significant levels of debt, lead to low growth and low growth leads to low public revenue. It’s a problem. There the market is not enough. But without the market, you end up like the German communists I visited in the 1980s or Cuba. You have to solve it another way. But the Government has not destroyed the markets: this new norm is not stupid compared to that of Count Bugallal in the 1920s that we changed with the Boyer Decree. So once the tenant had a rental contract, he decided if he renewed it with the price he had agreed upon. Putting in a tenant was worse than now a squatter. Nobody rented. The one now will reduce the offer and make it difficult to access the rental, but it is not to do nonsense of that type.
Do the measures that the coalition government is taking now sound more like recipes from the past that you cite or from the future seen from the distance of your public experience in Spanish and international institutions and ministries?
Well, I believe that Nadia Calviño has done wonders, defending non-idealistic measures. Other proposals such as creating a State supermarket… I would love to see these young people in that communist Germany to see what a supermarket like that is. That awful! As German and Nordic social democracy has always said: I use the market as much as possible, the state as much as necessary. In other words, I have to combat inequalities by raising taxes, protecting the worker, etc. The great debate is how to manage.
Finally, a very Spanish debate: decentralization and overlapping entities, is it a problem or a benefit? Because lately the critics grow. And it happened before, a lot, when the 2008 crisis caused by the old savings banks and the political influence on them.
Fundamentally it is a spectacular benefit as is respecting the law. Hopefully in Catalonia they realize that it is good to have independence as an objective as in the PSOE the socialization of all property was, but then he said ‘this is maximum’ and now we are going to see if the situation of the workers, their health, etc. The decentralization of power seems fundamental to me, economically changing things closely without brutal decisions from the center. And also to achieve relative peace. What has happened to Emmanuel Macron has a lot to do with the centralized state: the whole world takes to the streets against him. What the State should do is to be continuously organizing conferences, tables, etc. Switzerland is an example.
