04 Jun

Publication of the last Financial Stability Review (Banco de España)

Issue 34 of the Financial Stability Review, published on 31 May 2018 by the Banco de España on its website, presents, among others, the following articles:

Banking concentration and competition in Spain: the impact of the crisis and restructuring”, by Paula Cruz-García, Juan Fernández de Guevara and Joaquín Maudos This article analyses recent developments in banking concentration and competition in Spain, focusing on the impact of the recent restructuring and consolidation of the industry, with information at the provincial level. The concentration indicators presented show that, in principle, concentration has increased since 2008, although when in the calculation of net income regard is had to the cost attributable to credit risk, the final conclusion is that such income is not substantially different from that existing pre-crisis. Furthermore, market concentration at the national level masks very different concentration situations provincially, where banking concentration levels are particularly high in some cases. Accordingly, the analysis of banking concentration and competition should take into account the relevant geographical market, which is generally closer to the provincial than the nationwide level.

Completion of the Basel III post-crisis reforms: overview and analysis of key features”, by Rebeca Anguren, Christian Castro and Danae Durán In December 2017, the Basel Committee published the final revisions to the Basel III framework with the aim of reducing the high variability observed in risk-weighted assets. To this end, substantial changes were made to several regulatory standards, including the two available approaches (the standardised approach and the internal ratings-based approach) for credit risk, the leverage ratio, and the operational risk and credit valuation adjustment frameworks. In addition, an aggregate floor to risk-weighted assets based on the standardised methods was added, which provides a robust, risk-sensitive backstop compared with the requirements obtained under internal approaches. In parallel, the Basel Committee completed its review of the prudential framework applicable to sovereign exposures, without changes to the current treatment at this stage. The article provides a description of all these developments, along with detailed explanations of their key features, rationale and workings.

“The risk of climate change and financial institutions: international challenges, measures and initiatives”, by José Manuel Marqués and Luna Romo The 2015 Paris Agreement acknowledged the need to mobilise financial flows towards investments supportive of a low-greenhouse-gas-emissions economy and that are environmentally beneficial, what is known as “green finance”. The authors explain the debate on the new demands climate change places on the financial system as a whole and on the banking system in particular, so that they may join the fight to minimise damages and support preventive initiatives.

An analysis is made of the extent to which the financial markets and banks acknowledge and act in consequence of the risks to which climate change exposes them, and the public and private responses triggered by the fight against it. The main national and international measures geared to improving the perception of climate risk and to helping financial markets and intermediaries identify green projects are also reviewed. The authors conclude that climate change has not been fully taken on board by the financial sector and they identify several obstacles preventing the mobilisation of funds for green projects, although the overall assessment at the international level reveals favourable developments in this respect.

Click here to read the full financial stability review.

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