Independence from Spain could mean Catalonian banks face the threat of significant chaos due to refinancing and accessing ECB services.

GD/AD – 10/2017

Contrary to the positive stories being published, tensions are still bubbling under the surface of the Spanish banking sector. This is being made obviously clear in light of Catalonia’s potential split from the rest of Spain. Even though a unilateral declaration of independence has repeatedly been postponed, and not even close to being enacted, Spanish Banks have already started moving their offices out of Catalonia. A declaration of independence could mean that Catalonian banks will be faced with the threat of chaos due to refinancing and accessing central bank services, including contact with the ECB. 

Further evidence of the trend towards more banks failing or merging was seen in summer following the collapse of ‘Banco Popular’ und ‘Liberbank’. The two banks were characteristically different. Banco Popular was a traditional savings bank for the general population which saw a run on people trying to rescue their savings in June this year. Liberbank is more dangerous for investors because falls in its share price make them virtually worthless. As reported by German internet magazine Telepolis, Liberbank would likely be subject to the bank resolution directive, which would result in massive shareholder losses. This directive has actually been in force since the start of 2016, but is circumvented if it serves political purposes. This was the case for the Italian Bank Monte Paschi di Siena and two other small Venetian banks. 

Banco Popular and its liabilities were sold to Banco de Santander for the symbolic price of one euro. Massive job losses and branch closures were inevitable. Critics have stated that the Spanish government, like the Italian government, has done little to make sure that the critical state of the banks are made obvious before it is too late. Lawsuits have already been taken out against the managers of Banco Popular. Both employees and borrowers were influenced by capital increases to buy shares in the bank which are now worthless. 

Observers have questioned the value of concentration in the banking sector based on the Spanish model. Ultimately, how should the resolution directive be used in the event that the largest bank in the country, and the second largest in Europe, find itself in financial difficulties? According to Telepolis, in addition to the Popular branch network, Santander will also receive €5.2 billion in tax credits following their takeover of Popular. Industry experts call this development ‘too big to fail’. Given the latent growing problems in the Spanish economy through regionalism, this is a risky game not only for Spain but the Euro Area as well.