ABOUT SAVINGS BANKS AND COMPETITION 

It is not superfluous to emphasize in the first place something which on the other hand is obvious: that all the statements made here are personal and more in my capacity as university professor than as Member of the Tribunal of Competition Defence. I would like to make them because I feel I have the duty of highlighting some important aspects hardly treated from the point of view of loyal competition defence, and that I understand personally that it is necessary to show when examining merger processes, the performance of financial entities in general and of savings banks in particular. The obligation and responsibility of formulating these arguments increase when intellectual coherence led me to formulate a personal vote with similar orientation in the BBVA report, already made public and to which I refer, when continuous mergers of regional savings banks are taking place. In addition, in Spain the importance of the savings banks is highlighted for example by observing the volume of demand, savings and credit deposits in all the savings banks that ascends to 217.723 million Euros of a total of the banking system of 420.441 million Euros, representing therefore in this variable a percentage superior to 50%. From the beginning I would like to emphasise again that the reasoning here is made generally and not directed exclusively or concretely to any merger operation or savings bank in particular. 

Already since the first report of financial entity mergers the Plenary of the Tribunal has shown preference for international mergers over national ones, and for interregional ones over intra-regional ones in the case of savings banks, increasing the competence and independence of the political powers as well as penetrating into the convenient unit of the market for all. Such warnings have been obviated and mergers within each Autonomous Community are more and more widely consolidated, penetrating into the connivance between the autonomous and local political power with financial power based on the inertial trust, sometimes ignorant, of depositors and decreasing the wealth of variety when turning to banking services. 

The control of concentrations, in European Community legislation as well as in national legislation has a preventive character to avoid restrictive situations and temptations of competition by collusive agreements, market distribution, discrimination, abuse of positions of authority, anticompetitive pressure… etc. The dangers of not acting with strictly professional attitudes increase when the Council of Administration of financial entities are controlled by the political powers, be these national, autonomous or local. Especially when financing certain projects or participating in the shareholding of this or that company and autonomous or local public companies. It is appropriate to mention again at this point that stated with regards to the personal vote of the BBVA report: “The improvement in economic activity of all operators, even potential ones, requires a common framework of general rules that guarantees the necessary and convenient for all market unit without discriminations or economic, financial, administrative, regional, fiscal privileges or of any other type. Because of this, the same as with control of Public Expense, public aid and grants, in my opinion for the development of free competition special importance should be given to the reinforcement of control regarding the use of economic and financial power characteristic of banks and savings banks. This is especially important when they direct, on their own initiative and without having their original proprietor’s expressed will, other people’s resources towards this or that company or towards this or that institution, association, party, grouping, union or physical person.» 

When a continuous process of privatisation of the national public managerial sector has taken place successfully and with a remarkable extension of popular capitalism and an improvement in the government accounts; in a parallel and regressive way, an intensive and extensive process of creation and development of autonomous and local public companies takes place, where the financial entities are not neutral in their gestation and strengthening. As Public Banking has disappeared, Autonomous and Local Public Banking is reborn through the saving banks whose legal ownership is not at all clear. A substantial proportion of their profit should be dedicated to investments where professional approaches of profitability are not applied on occasions and where important challenges of modernization should be faced such as how to obtain the necessary own resources for, for example, transforming themselves technologically or assuming the necessary cost of reduction of personnel that increases efficiency or competing with the large international financial entities. That new ‘public banking’ could be at the root of autonomous and local indebtedness that those responsible for national and European economic policy are rightly so concerned with for being, among other things, a deficit and inflation-generating factor. 

In this sense it is necessary to remember the principles expressed in the recent Law 52/1999, of December 28th, Amendment to the Law 16/1989 that the reform process begun with the Royal Decree 6/1999 of April 16th culminates, of urgent measures of competition liberalization and increase, as regards control of concentrations, when it says that “The orientation of Spanish economic policy lies on the conviction that stable and non-inflationary growth of the economy and, consequently, the creation of employment, are required to grant a preponderant role to the efficient operation of the markets. Together with that, the integration of the Spanish economy in the community context and, in short, in the Economic and Monetary Union conditions the margin of performance of the Government on the design of macroeconomic policies, fundamentally on monetary policies. In this context, micro-economic policies and especially competition defence policies have special relevance.» In the attainment of stable growth and a non-inflationary employment generator the behaviour of the financial entities is vital because of their particular characteristics. 

Investment inflation, bound directly to the credit policies of banks and savings banks is that in which a hypertension of the private forces of the economy, encouraged by the ease and relaxation in the concession of credits, ends up causing an over-increase of investments way above the most leisurely and advisable rhythm of voluntary saving. Monetary and credit policies are the basis of expansible and recessive cycles of the economy. When the bank system relaxes, for one reason or another, its credit and market interest rate policies fall below the natural interest rate inducing the economic operators to request loans that they use to lengthen projects and productive processes. Such projects, when having been forced by a situation in which the investment was not established in the corresponding voluntary saving, stop being profitable and have to be abandoned before being completed, which initiates the crisis or recessive phase of the cycle that can bring such pernicious consequences. 

Harmonic and enriching competition appears with more force where saving and stable growth without stridencies are well established in the behaviour of the economic agents. Continuous public deficits and the rising increase in Public Debt generate tensions and dangerous imbalances. In the same way, disproportionate indebtedness in the managerial environment, wanting to take on projects above the reasonable possibilities of ones own funds and voluntary saving, usually gives rise to anti-orthodox pressures and behaviour that harm competition, on occasions seriously. Stability is not only an applicable approach in the macroeconomic environment but rather its effectiveness is more notorious, if possible, when it is widespread throughout the whole micro-economic managerial weave. 

All the previous reasoning leads us to the importance of solvency and proportionality in investments by all the economic agents. But they are especially relevant for reconsidering the importance of control of financial institutions’ credit expansion by the Bank of Spain. This establishment of the coefficients of solvency of the Banks and Savings Banks are especially relevant once it is not possible to use the variable of the interest rate nor exchange policies by the National Central Banks when they have been given to the European Central Bank. Inflation, more than a simple elevation of prices, is a monetary phenomenon directly related with the quantity of money that circulates through the system. For that reason, in this context, and in connection with competition, I wanted to highlight the consideration of the danger that participations of the financial entities in the capital of non financial companies or credit commitment in projects forced by not strictly professional motivations can invoke. It is easier to relax the credit and investment policies for those companies on which certain control is exercised and in those where there is confidence of obtaining important profitability that maybe would not be possible in the pure banking business. The independence of company behaviour is restricted in this way and there is more inclination towards strategic oligopolistic agreements where their effect can be more pernicious for the stability and solvency of the macroeconomic group. On the other hand it is possible to fall into the temptation of fleeing forwards to try and save forcibly compromising situations of certain companies or projects of public administrations, with the added problem that the granted credits are at the cost of the amount deposits of passive clients, keeping in mind the system of fractional reservation. 

Because of all this, bank mergers and financial entities in general should be examined, bearing in mind that the greatest solvency after the merger and the consequent restructuring should be the basic criterion so that such an operation of concentration can be convenient from the point of view of competition. Anyway it is as well to point out that the traditional conservative mentality of Spanish clients means that in the retail market the entrance barriers are high, so that very concentrated markets can be created there where bank competition is more beneficial for expansion of managerial mentality among citizenship with employment creation united to it. Mergers in general and the macro-mergers in particular give rise to less independent behaviour by a greater number of agents. This means that the control extends from the peaks of economic power since money is nothing more than control of future work. The participation in all types of businesses by the financial institutions gives rise to multi-sector integrations that can be dangerous for competition because of collusion temptations and possible management of the national, autonomous or local economy by the financial institutions. It is much richer for the group to trust in the agents’ solvent independence and autonomy and in the spontaneous coordination of the markets. The more credit a company uses, the less independence of behaviour it possesses. Company solvency always moves in favour of competition. The development of that venturesome capacity that is vital for the establishment of competition in the different markets, goes together with the increment of personal competence in all fields, personal self valuation and criterion of independence and financing sources to take on new managerial tasks without depending on others. Company solvency, especially of the financial entities, always moves in favour of competition. 

Loyal innovative competition in the markets connects directly with established, protected property, clarified with solvency, and with the free company. The result is that Competition Defence Law is closely related to articles 33 and 38 of the Spanish Constitution that affirm property in its social function and with the free exercise of entrepreneurship. Under the normative of this law the processes of concentration of companies in general and of financial entities in particular are analysed,

The foundation of property, personal as well as managerial, as long as the former derives from the latter, makes possible and strengthens the principle of autonomy and independence of behaviour by the actors of the economic plot. Free development of personality, consecrated in article 10 of the Constitution, with the inviolable rights that are inherent to its dignity, bases the venturesome and managerial activity of each one in his concrete area where a multitude of convergent diverse circumstances has located him. 

This means that the definition, respect and protection of real as well as personal property rights under a system that sums them up clearly and reduces with it the degree of uncertainty associated to all innovation, permit greater possibilities of economic growth in society. From this appears the importance of institutional reforms since these property rights have to be incardinated in the legal structure of a society. 

All this leads me to the convenience of emphasising the necessity of opening an effective debate to take on an institutional reform of the saving banks where, preserving their traditional characteristics, ownership rights and the agents’ responsibility and competence are defined and clarified as well as the modernization of such entities for better economic development to defend the interests of the clients, especially of the depositors. The current institutional situation that is consolidated dangerously, bears a series of threats for competition, inflation and economic development that it is necessary to reveal. 

Along these lines and lastly, summarizing the two central ideas, I have to highlight that this whole sketched general framework gets complicated when we bear in mind the important percentage that the savings banks maintain in the system along with their relationship with the political authority of the Autonomous Communities and, therefore, with the extensive network of public aid and financing of all types of projects not following a strictly efficient mentality. The greatest competition is united with the greatest variety and in these cases, for example the different combinations of possibilities of liquidity, profitability and risk will be more extensive as long as there are more alternatives of accessible solvent entities. The institutional reform of the savings banks, introducing greater competence, as it is already doing, and redefining ownership rights and administrative responsibilities, where the depositors should play a preponderant role since in the end they are the authentic proprietors and those most affected, becomes more and more urgent and high-priority. It is also important for reasons of competition defence and increasing the competence of our economy. 

JJ Franch Meneu
European Union and Competition Legal Gazette July/August 2000, number 208