http://assets.fundacionfaes.org/Fotos+desarrollo+home/2011/03/Observatorio_d.jpg Juan Velarde: "Savings banks were born in Spain in the mid 19th century. At that time, there was not a trace of a Welfare State and there were practically no solvent banks at all (?). The credit process of savings banks started with a triple idea: very reduced geographic range, low interest rates, and huge security to whomever deposited money in these institutions" "The liberalisation of savings bank starting in 1977 and the belief that they would be capable of competing with banks lies in the contrast between bankrupt bank institutions and savings banks without problems that emerged after the 1974 oil crisis (?). The pressure of the autonomous regions and of other political forces led savings banks to lending absurd loans and to covering budget deficits to relieve autonomies' institutions, local corporations and even public companies linked to those sectors" Juan Jos? Toribio: "At the beginning, the crisis in Spain did not seem that serious. Spanish banks had not taken out the risks from their balance sheets by including them in bonds. Neither had they invested in toxic financial assets. It was therefore thought that our system was exempt from the problems suffered by international banking. That was the time when it was repeatedly said that Spanish banks did not have any solvency problems and that they were the soundest in the world. However, we did not realise that toxic assets of Spanish banks were maybe not as high as those of the American and British banks, but different; slower to emerge, much more directly linked to real estate credits, and therefore, they would emerge with the same intensity as in the Anglo-Saxon case. But the intervention came much later in time and with a lot less determination. "But the Spanish financial system has a very low or even null capability to generate profits both in this financial year as in the forthcoming. This is due to the following reasons: Regardless of the value we ascribe to the assets of our _Cajas_, the truth is that these assets do not offer returns. A very important part of the assets which make up our financial institutions have zero performance. Companies and families have a generalised tendency to deleveraging. Liquidity problems prevail: bonds issued at the time of euphoria are arriving at their maturity dates and they are very difficult to renovate. On the other hand, the interest rate of their renovation is considerably higher. Bearing in mind that there are refinancing problems in the interbank system, all these issues have resulted in a sort of liabilities war. To the lower business turnover and liquidity we have to add Basil II regulations which, among other things, have increased the core capital of financial institutions from 3% to 7%, and that can only be achieved in two ways: raising the capital and/or reducing the assets (the denominator). In any case, the issue is, what probabilities has our financial system of restarting an ordinary credit flow in the short term? The answer is: very few". Jos? Luis Feito: "The credit crunch in Spain has become more acute in 2010. But banks are not to blame for this. Spanish banks cannot lend more than what they are lending and probably they are lending more than they can lend. Domestic economies and Spanish companies have huge debts, but our financial system has no money to lend them because the diminishing value of their assets is de facto making them breach capital and solvency ratios. Furthermore, the financial system has a huge dependency on wholesale finance from the rest of the world. Spain, along with Portugal, is the country with the highest net external debt in the world. Our companies are indebted with our financial system, and our financial system with the rest of the world. The problem is that the rest of the world does not want to renovate the debt" "Analysing the risks of a tighter credit crunch is very important. This will inevitably depend on the restructuring process of our savings banks and how the Spanish and European authorities will respond to the next attack on the Spanish debt" Fernando Fern?ndez: "Part of the problem of the FROB I is repeated in the FROB II. It has a problem of concept, design and quantity. Concept, because it allows current managers to be a part of the solution. If part of the problem lies on the nature of the institution and on perverse incentives to strange behaviour, it doesn't seem sensible to give them a role in the solution. Design, because the time for options menu has already passed. The problem is urgent. It's not a matter of having a range of possibilities, because international markets want to see a specific solution (what, when and how much is it going to cost). And quantity, because nobody believes that the problem of the Spanish financial system can be solved by an injection of 20 billion euros. 50 or 100 billion euros would be necessary. Thinking that investors will continue being short-sighted and continue thinking that the value is closer to books than to markets is ridiculous." "The solution to the ails of the Spanish financial system is to transform savings banks into public corporations without allowing them to chose. Approving a special legal regime for financial foundations, so that autonomous regions cannot distort their transformation process, and giving the control of these foundations to the Bank of Spain. Furthermore, the transformation schedule must be compulsory, including an obligatory due diligence procedure through an IPO. Meanwhile, some institutions will have to be intervened and some will even have to be wound up. This inescapably demands a partial and temporary nationalisation of the financial system and accepting European aid. Taking the MOODY"S latest calculation issued yesterday, the Spanish treasury will need 50 billion euros which it will not be able to sell in financial markets in the next three months, so the most feasible thing is to use the European financial stability fund even though its political cost will be very high. And naturally we cannot forget the principles of transparency, accountability and cost minimisation for individuals."