"The Rules of the Banking Game Have Changed"

Continuous Education Program session with Prof. Jorge Soley

16/10/2013 Madrid

Jorge Soley

In spite of the storms they have been going through since the financial crisis erupted, banks deserve the trust of business. This was one of the key messages in the talk given by IESE Prof. Jorge Soley during a Continuous Education Program session titled “Why We Need to Trust the Banks.” The talk, organized by the Alumni Association, was held on the Madrid campus on October 14.

Soley reminded his audience that the banks have already overcome their systemic crisis - a crisis worse than the 1929 crash, reducing wealth worldwide by €4.1 trillion. However, despite these advances, he said one important task remained - to give business access to credit. “It’s not good for companies to be as dependent on financial entities as they have been up to now,” Soley said.

“Financial costs for small and medium-sized businesses are even higher, and they have less room for maneuver when it comes to negotiating credit,” he said. What measures must be adopted to stimulate credit for small and medium-sized businesses? One, he said, is the financing of banks via the ICO (Official Credit Institute), as well as restructuring the nationalized bodies, carrying out a business plan with Sareb (the so-called “bad bank”), and stimulating alternative finance. Soley believes companies need to urgently explore the latter, such as the Alternative Stock Market and the Alternative Fixed Income Market. as well as risk capital groups.

Solvent banks

Soley emphasized that “not all banks are the same” and they have varying degrees of solvency, something business needs to bear in mind. In spite of everything, the IMF and European Commission have made a favorable assessment of Spanish banking’s reform program. In the context of deep reforms, banks shouldn’t lose sight of the fact that one of their main aims is to be profitable in order to stay in business, which is “difficult and complex” during a crisis. The professor emphasized the importance of “a service bank.”

“It’s true that there are still doubts about the data supplied regarding the value of assets and levels of indebtedness of the banking system, but this will dissipate with the economic recovery that is already under way in Spain,” he said. That said, this glimmer of economic hope doesn’t mean we will return to 2006 credit levels. “The crisis has changed the rules of the game. And Basel’s prudent policies have changed the way banks operate,” Soley said. According to a recent study Spain is one of the countries that is most criticized over its banking activities. For this reason, banks have to make an effort to regain lost confidence.

Soley was accompanied by the vice president of Carbures Europe, Juan Juárez, who talked about his company’s experience of working with the aeronautic and automobile industries.