Everything indicates that Spanish banks achieved the highest profits in their history in 2023. Around 26,000 million euros. The explanation for this fortune lies in the way they have taken advantage of the rise in interest rates. They immediately raised interest rates on mortgages and loans, but were more cautious about increasing the return on savings and deposits.
However, there is another, less well-known explanation for some of these huge profits by Spanish and European banks. The European Central Bank (ECB) and the national central banks have granted private banks risk-free windfall profits of around 140 billion euros in 2023. This was made possible by the generous remuneration of 4% of the reserves privately deposited by the banks sector in central banks amounting to 3.7 trillion euros. A transfer from a public institution to private banks of a magnitude comparable to the European Union's spending in 2023 (169 billion euros).
These data appear in the open letter addressed to the Governing Council of the ECB by prominent economists and members of the European Parliament on the 24th. The letter is signed by Professors Yuemei Ji, Paul de Grauwe, Sebastian Diessner, Andrea Roventini, Philipp Heimberger and Uuriintuya from Positive Money Europe. Also from MEPs René Repasi, Philippe Lamberts, Bas Eickhout, Henrike Hahn, Paul Tang and Evelyn Regner as well as the UN rapporteur Olivier De Schutter.
The text estimates “very worryingly that although banks have received 4% of their reserves in the Eurosystem, their customers receive a minimum remuneration for their savings, averaging 0.35%.” As a result, ordinary households do not benefit from the ECB's high interest rates, while they have to accept high interest payments on their loans and mortgages.” And it calls for an increase in unpaid reserves in order to achieve “a more stable and fair financial system in Europe”.
The issue was already raised last summer by De Grauwe and other economists such as David Hollanders in Social Europe. Carlos Arenillas, former vice president of the CNMV, and Jorge Pérez, former head of the Bank of Spain's regulatory department, explained in “The Law of Banking Silence” (November 14, 2023 in Cinco Días) that “these payments will generate significant revenue.” Losses and a deterioration in the assets of the Bank of Spain.”
In Fightin Inflation More Effectively Without Transferring Central Banks' Profits to Banks, Paul de Grauwe and Yuemei Ji compared the major central banks' payments to banks until August 2023: ECB 146 billion euros (1.10% of GDP); Fed $162,000 million (0.64% of GDP) and Bank of England €39,000 million (1.75% of GDP). Spanish banks received 9,170 million euros (0.68% of GDP), while German and French banks received 49,107 (1.27%) and 35,925 (1.36%), respectively. Without transparency, Europe cannot function with so much organized inequality.
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