Hot New Spanish Model… for Banking

Tony Daltorio, The Investment U Research Team

There’s a hot new Spanish model that has everyone in Europe going ga-ga.

No, it’s not a runway or swimsuit model. It’s Spain’s banking model.

The Bank of Spain forced Spanish banks to follow a very conservative banking model using what they call “dynamic provisioning” requirements. These requirements forced Spanish banks to build reserves during the good times. This left the banks with capital to draw upon which is helping them survive the downturn.

The Bank of Spain also restricted local banks from piling into mortgage securities. And Spain has a small credit-card and commercial property market which limited risk exposure for the banks. But the banks did their part too. They focused on the retail market rather than risky investment banking, as did their American counterparts.

This new ‘hot’ model