The Challenge of the European Market

Abstract

In 1992, the banker Alfredo Sáenz announced that Spanish banks, in a few years, would come to a true ‘crossroads’ that would make it difficult for them to obtain capital (Sáenz, 1992). The expected increase in competition, internally (by disintermediation) and externally (from the Single European Market of 1993), would cause a reduction in profitability and an increase in risk. These factors would depress the supply of capital to the banks, precisely at a time when it would be increasingly necessary to them in order to meet the requirements of the re-regulation that was in progress since 1988, when the Basel Committee, created by the BIS in 1974 in response to the Herstatt Bank crisis, had reached an agreement known as Basel I (1988), which involved the establishment of minimum capital levels for banks (the ‘Cooke ratio’), starting from 1993. This agreement was internationally accepted and applied, so it was to be in vigour in Spain too.