The five main Spanish banks add a firewall of 157,000 million euros of high-quality capital to face inclement weather in the financial system such as those that have occurred these days following the fall of Silicon Valley Bank in the United States and Credit Suisse in Switzerland The amount exceeds the requirements of the ECB and serves as an argument for the banks to defend their solvency at the most delicate moment for the entities in at least a decade.
This shield is part of the measures put in place internationally in 2014 to avoid another major financial crisis. It corresponds to the first barrier, known as CET1, which includes market capitalization and reserves. If that were not enough, recourse would be had to the now famous coconuts, that is, to bonds convertible into shares in the event of a deterioration of the balance sheet. The last resort of what is known as bail-in, or internal rescue, would be subordinated debt. After that, the only option for survival would be a public rescue, or bail-out.
The figure for the firewall is in accordance with the size: Santander adds up to 73,350 million, BBVA, 42,485 million; CaixaBank, 27,447 million; Sabadell, 9,983 million, and Bankinter, 4,343 million. The ECB requires banks to exceed a minimum percentage of capital in relation to assets, which is usually between 7% and 9%. Spanish entities exceed it, with rates around 12%.
These figures and percentages are what the banks are disseminating these days to convey tranquility after a dizzying week in which the rescue of Credit Suisse has caused sharp falls in their quotations. The message from the ECB that it would support the banking sector and that the firewall order would not be breached at any time was what calmed the storm. The National Bank of Switzerland had caused a big upset last Sunday, after sacrificing the coconuts in the first term in the rescue of Credit Suisse.
The shareholders’ meetings of Sabadell, Bankinter and BBVA have been held these days, and the first executives of the banks have had to go to all of them to reduce anxiety. The president of Sabadell, Josep Oliu, highlighted yesterday “the solidity and balance” of the entity’s balance sheet. The CEO of Bankinter, María Dolores Dancausa, also did this, saying that the bank “enjoys a solid capacity for resistance”. Last Friday, in the middle of the Credit Suisse storm, the president of BBVA, Carlos Torres, used the term “adequate” to talk about the bank’s situation.
Apart from the first capital cushion, the Spanish banks have issued close to 20,000 million euros in coconuts which, if necessary, they can transform into shares. They also reach the crisis with liquidity ratios above 100%, which is the minimum threshold set by regulators. Above this percentage, it is understood that banks are able to respond to short-term capital outflows, contrary to what happened to SVB with the massive withdrawals of deposits.
These defense mechanisms have been in the works for years, but the Credit Suisse crisis has shown how quickly money can fly. A Blackrock report describes what has happened these days as “tumultuous” and again talks about recession risks.
Banking sources emphasize the diversification of banks both in their profile of depositors and debtors. The credit rating agency S
