The Spanish Savings Bank Crisis: History, Causes and Responses

Abstract

This article reviews the reasons behind the crisis in the Spanish saving banks system (‘cajas’) and discusses the responses taken by the Spanish government to handle the crisis. I argue that the origins of the crisis have to be traced back at the liberalization of the cajas sector and the period of aggressive geographical and commercial expansion of the cajas that ensued. In a period of cheap credit due to Spain’s entrance in the Euro, many cajas became financial facilitators of the housing bubble. Whether this was due to professional ineptitude of the politically controlled cajas, poor judgment of risks, or mere corruption and capture by construction interests, is a matter of further analysis. What is clear is that the social cost of the implosion of the system is high, especially in terms of house foreclosures and evictions. The government’s strategy for mergers and acquisitions of problematic cajas is of questionable efficacy as it might be creating new units too big to fail.