How Santandar Got it Right

Santandar, the Spanish bank seems to be surviving the current banking crisis, and indeed thriving (lately it picked up some of the juciest parts of Bradford & Bingley). How and why? Gillian Tett in the FT elaborates:Link.

One key factor protecting Santander from some of the global woes is the tough approach that the Spanish central bank has taken towards regulating its banks in recent years.

Earlier this decade the central bank in essence decided it disliked the idea of banks keeping vast quantities of credit assets off their balance sheets. It also quietly demanded that banks hold higher levels of reserves than international accounting laws required.

Consequently, it furtively “gold plated” – or rewrote – European Union rules to discourage Spanish banks from creating entities such as structured investment vehicles (SIVs). And when banks such as Santander embarked on an acquisition spree in Mexico, the central bank reined them back.

When the central bank initially took this stance, it looked pretty odd. After all, in the early years of this decade institutions such as the Federal Reserve were convinced that banks could hold less capital than before because innovation had made them less exposed to credit risk.