Jordi Gual has been chairman of CaixaBank, Spain’s third largest lender, since 2016. The economics professor has spent 12 years with the bank’s parent group, which has a large network of more than 6,000 branches, one of the largest in the country. He has also advised the European Commission, the EU’s executive arm, on economic policy.
He spoke with Handelsblatt about why he thinks having a large branch network is as important as digitization, what Europe should do with its bad loans and how Germany is a stabilizing force for the euro zone’s banking system. German politicians, he believes, are rising to the challenge of playing a major role on the financial world stage as America withdraws. “Stability may be a bit boring, but it is far better than booms and busts,” he said.
Dr. Gual, everyone talks about digitalization these days, yet CaixaBank has the most expansive branch network in Spain. Why?
That’s a question that often comes up in conversations with investors. The perception is that because of increased digitization banks should be cutting down costs by reducing existing branch networks, but the answer is more nuanced than that.
So what do you tell them?
Our branch network allows us to be close to our clients. They are geographically dispersed, especially the older population who, by the way, are the ones with the highest levels of savings. At CaixaBank, we believe that banks need both: digital channels to reach out to the millennials, but also a strong network of branches to offer financial advice and higher value-added services. Digitalization is a great opportunity that works alongside our branch network.
You sound pretty optimistic. Many of your colleagues seem to focus on risks, not on the opportunities.
That mentality is the result of several years of hardship. But digitalization and fintechs are a risk and an opportunity at the same time. This is also true for interest rates, which are slowly increasing. For a bank like CaixaBank that collects deposits and provides loans, higher interest rates allow us to make better margins.
If bail-ins are used for systemic problems, they will backfire politically.
Higher interest rates might be good for banks. But aren’t they a risk for countries like Spain?
Not necessarily. We expect long-term rates to increase moderately as inflation rises, but for countries in the euro-zone periphery it is not so much the interest rates that matter, but the risk premium they have to offer to investors. And Spain can affect this premium by implementing structural reforms, by maintaining competitiveness. I am not worried about Spain, where such reforms have broadly been undertaken. My concern is if there is political pressure on the currency.
If there is pressure against the euro, for example in the event that Marine Le Pen wins the national elections in France, then investors would begin to consider and price in a scenario of a euro-zone break up, and with that we would see a rise in the risk premium. Europe’s economy is recovering, but the euro zone is an unfinished business, and parts of its banking union are still to be addressed.
One question is how to deal with non-performing loans, particularly for banks in Italy. Andrea Enria, the head of the European Banking Authority, has put forward the idea of a European bad bank. What do you think of that idea?
The idea has merit in principle, but in practice it would take a long time to get such a bad bank up and running. I believe that we should use the tools that we already have in place to support the weak banks. NPL’s are a legacy issue and as such we should look to use existing rules such as state-aid regulations.
In other words, you are proposing a bailout by taxpayers.
I understand the German reluctance for more bailouts. But let us be clear about what a bailout is. It is something that you undertake to rescue depositors, not banks and their shareholders. You do it to protect the system when a bank which has run into difficulties is systemically important. In those instances, ruling out bailouts completely doesn’t make economic sense.
But bail-outs don’t make sense, either. Banks take excessive risks if they can count on taxpayers coming to their rescue.
Today banks and regulators have other tools to control risks in the financial sector – the most important one being capital ratios, which have already doubled compared to pre-crisis levels.
Europe has agreed on bail-ins. Investors should take the risk when a bank runs into trouble, right?
If bail-ins are used for systemic problems, they will backfire politically. Many Italian citizens for example bought securities issued by their banks ten years ago. If you bail them in now, these people will be very upset, and you end up causing political turmoil. I acknowledge that Europe has advanced with regards to the resolution and recovery legislation. But these tools cannot be effective in addressing legacy issues – they are instruments for future crises.
Speaking of the next crisis: While Europe tries to tighten the rules, the new administration in the US seems to be eager to loosen them. Who is right?
We’ve seen an amazing strengthening of regulation over the past years. The financial system is safer, sounder and more liquid. But we need to have a debate on whether the efforts were sufficient and to what extent did they lead to unintended consequences. CaixaBank, for example, is a pure retail bank, with a simple business model. We collect deposits and provide loans to individuals and companies. There are no unexpected risks, we are not engaging in proprietary trading or investment-banking activities. Despite that we had to strengthen our capital ratios and fulfill other requirements to levels which are more suited to our peers with more complex business models.
Now comes Mr. Trump with his deregulation agenda…
… and I am not sure whether I agree with it. But it might be a good moment to stop the never-ending flow of new regulation and to review the effectiveness of the rules that are in place, instead of increasing capital ratios further.
What role is Germany supposed to play on the international stage? Since the election of Donald Trump, expectations seem to have increased.
My sense is that German politicians are rising to the challenge. They are more willing to play a leading role on the international stage and within the European Union. For us as a bank, financial stability is very important and this focus on stability is one of the major talents of German politicians that is exported to peripheral countries in the euro zone. Stability may be a bit boring, but it is far better than booms and busts, which come with dangerous political side-effects.
Michael Brächer is a financial editor on the investment team in Frankfurt. To contact the author: firstname.lastname@example.org