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Regulation, digitisation, reputation

Regulation, digitisation, reputation

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CaixaBank Chairman Jordi Gual shares how banks deal with all three 

>> Discover: Latest News & View (.pdf)

>> Learn more: WSBI-ESBG position on digitisation

>> WSBI-ESBG position: proportionality


The following opinion piece was published in the third quarter edition of WSBI-ESBG News & Views​ magazine.


​Published online: 17 November 2017​


The European economic outlook has clearly improved over the past few months. Downside risks for output and prices have receded and a broad-based economic recovery is gaining traction. In this context, the ECB has started to change the tone of its communications and is likely to announce, before the end of the year, the tapering of the quantitative easing program, something that will mark the beginning of a gradual process of normalization of an extraordinarily loose monetary policy. Interest rates, however, are still expected to remain low for long, continuing to put strong pressure on bank profitability.

But low, even negative rates are not the only factor testing the business models of retail banks. Capital requirements have risen significantly – actual core capital ratios have basically doubled since 2007, from about 7% to around 14%. Business volume growth remains sluggish and non-performing loans continue to be an issue in several countries.

In response, banking systems have made, and are still making, substantial strides at cleaning up balance sheets, reducing costs through restructuring and consolidation, and raising revenues through new lending and the expansion of fee-based services. In addition, other fundamental challenges are also being tackled and were at the centre of the recent ESBG Retail Banking Conference: general regulatory pressures, taking advantage of the opportunities offered by digitalization and improving a reputation that has been damaged during the crisis years. 

Indeed, while the new regulatory framework aims to enhance financial stability, there is a need to avoid an overload that undermines the flow of credit to the real economy. In this regard, it is vital that the proportionality principle is increasingly taken into account by authorities in their decision-making. This principle should be based on size, risk profile and business model, among other relevant factors, with the aim to preserve the diversity of banks’ business models. Proportionality has already been applied success - fully in certain areas, such as the single resolution fund contributions (based on the risk profile of banks), but it should be extended more generally to the capital and resolution frameworks. For instance, the minimum requirement on own funds and eligible liabilities (the MREL requirement) should be clearly calibrated on a proportionality basis. Otherwise, there is a risk that small, locally-focused retail banks are overburdened with excessive capital and funding requirements. At the same time, there is a risk of creating an uneven playing field across jurisdictions at the global level. 

On digitisation, we are embracing new technologies and are increasingly collaborating with other players. While the use of big data deepens our knowledge of customers' preferences, the digitalization of processes and use of mobile applications improve significantly customer experience and allow bank staff to focus on value-added services (such as advisory) and dedicate less resources to routine, transactional activities. By combining physical and digital platforms, we ensure that our clients are able to choose how they interact with us and leverage core capabilities of European banks: proximity and trust. Increased collaboration, among incumbents and with new entrants, creates scale and network effects that are key in fostering innovation. This yields increased value to our clients, who can benefit from services with improved quality and more adapted to their needs.

The banking sector is also working hard to improve its reputation.As we have observed in the last few years, the smooth functioning of modern economies is not possible without ethical business behaviour. 

Our decisions have profound consequences for stakeholders – customers, employees, shareholders and society as a whole – that should not be neglected. Credibility and trust of all of our stakeholders are key drivers of sector sustainability. Based on a long-term vision, we need to apply effective environmental, social and governance strategies to build relationships of trust. These strategies can encompass, for instance, financing projects that are financially sound but also have a positive impact on the community; reducing our environmental footprint; providing services to help families and businesses to meet their financial and social goals; and enhancing the control and compliance culture and processes to minimize conduct risks. Beyond this, we need to nurture long-term relationships with our customers, employees and shareholders so that everyone is willing to invest capital into that relationship, be it relational capital, human capital or financial capital. 

The challenges ahead are indeed very tall but so are the opportunities. ESBG can foster the cooperation and engagement that we need to succeed. It can also help establish a constructive dialogue with policy makers and society at large about the contribution of retail banks to a truly diverse, sound and pro-growth financial system.


Jordi Gual

Chairman of CaixaBank​


>> See the piece in latest News & View (.pdf)


Digitalisation; Regulation; Innovation; Innovation Hub