My professor pointed out the other day that, in Spain, rather than say that the banks were bailed-out, rescued with public money, we should be talking about a bail-out of the savings banks, what in Spain we call “cajas”.
This is certainly true, and is a concept that I myself was confused about.
Traditionally, savings banks are more solvent than investment banks, and this is in fact true in places like Germany, and was true in Spain long ago.
In places like the U.S. commercial (savings) and investment banks merged after the repeal of the Glass steagall act in 1999.
In Spain however, savings and investment banks were distinguished. What happened, surprisingly, was that when the financial crisis hit in 08, savings banks had the weakest balance sheets, with the most toxic assets.
This seems strange, since like I said, savings banks are supposed to be safer. The reason behind this is simple to explain: Savings banks, in Spain, were highly politicized. It was in fact the savings banks that, “rode” the bubble the hardest, you might say, and were responsible for financing many investments for regional governments which would later prove unsustainable.
Sadly, these irresponsible bankers and politicians did not pay the price for their actions. The “cajas” were merged with the more solvent, less political, banks.
These entities were then in turn rescued with public money.
I find it curious that when us Spaniards talk about the financial sector, which has been a hot topic for ages, this kind of analysis and distinction is not understood, or perhaps simply, ignored.
Maybe we don’t want to accept this reality.