The 2008–14 banking crisis in Spain

The Spanish banking sector experienced a profound crisis starting in 2008. Its weaknesses stemmed from both conjunctural and structural factors. Starting in the mid-1990s, Spain accumulated increasing macro-financial imbalances including excessive credit growth that was heavily directed to the real estate sector. The rapid expansion of savings banks that had started in the mid-1980s generated additional financial stability risks as many of these firms were subject to little market discipline, poor governance and unsustainable business models. The latter were characterised by a large risk concentration in the real estate market and the dependence on unstable wholesale funding. The paper discusses the crisis response measures. Starting in 2009, Spanish authorities gradually introduced a series of increasingly bold reforms and regulatory measures that ultimately proved to be insufficient. It was only in mid-2012, when the Spanish government formally requested financial assistance from the European authorities, that deeper reform measures finally managed to contain the crisis. The paper draws several general lessons, for both crisis prevention and crisis management, including on the scope of the regulatory and supervisory framework, and on the limits of instruments such as dynamic provisions, burden-sharing arrangements and asset management companies.

JEL classification: G21, G28, G33

Keywords: AMC, competition, convergence, recapitalisation, resolution, savings banks, SLE, stress tests