Six intense years at the helm of the Banco de España. How have we responded to the challenges we have faced?

Pablo Hernández de Cos (Governor)

In his farewell as Governor, Pablo Hernández de Cos shares his vision about the Banco de España’s role during his term of office (2018-2024). These years have been marked by a succession of unprecedented events, such as the pandemic and economic and inflationary swings.

Today, at the end of my mandate, I step down as Governor of the Banco de España, a position I have been honoured to hold since June 2018. I would like to start with a personal reflection on what this period, fraught with upheaval, has entailed for the Banco de España and how we have dealt with it as an institution.

The Banco de España’s priorities are to meet the basic objectives we have been entrusted with – price stabilityOpens in new window and financial stabilityOpens in new window – and to contribute to improving economic policy-making through our analysis of the Spanish economy and its international environmentOpens in new window.

Our task is inherently complex, but these six years have been particularly daunting.

These six years have been marked by a more uncertain and complex environment. The Banco de España has helped shape economic policies to address this juncture in Spain, Europe and the world

A turbulent period, strewn with challenges

In 2018, Spain’s economy was regaining momentumOpens in new window in the wake of the 2007 global financial crisis, exacerbated in Europe by the subsequent fiscal crisisOpens in new window. These crises had a strong impact on our economy and our financial system. Also, admittedly, on its reputation and trustworthiness.

A succession of shocks, which led to major disruptions, a stumbling economy and the collapse of per capita income, ground the recovery to a halt (see Charts 1 and 2).

Chart 1

Economic activity

SOURCES: INE and Eurostat
NOTE: The figures provided for 2024 are the flash estimate of the year-on-year growth of GDP in Q1 and the year-on-year rate of the leading indicator of inflation (the harmonised index of consumer prices (HICP)) for May.

Chart 2

SOURCE: Eurostat.
NOTE: GDP per capita in real terms for Spain (brown line) and the euro area (orange line). The level for the initial year (2018) is set at 100 and the changes with respect to this initial level are shown. The grey line depicts Spain's level of per capita income relative to the euro area, expressed as a percentage.

The first and most important shock was the COVID-19 pandemicOpens in new window in early 2020, which brought global activity to a standstill. In 2021, as the economy was beginning to recover, inflation came back with a vengeanceOpens in new window, after decades of lying dormant (see Chart 1). Russia’s invasion of Ukraine stoked inflation and hindered the recoveryOpens in new window. In 2023 a banking crisisOpens in new window in the United States and Switzerland threatened the global financial system, although its impact was ultimately limited. More recently, Gaza has become a further source of uncertainty.

These events have strengthened other dynamics that were already transforming the global economy:

  • The need for the financial sector to adapt to the post-2007 changes in financial regulation and crisis managementOpens in new window, while facing the challenge of financial innovation.
  • An increasingly globalised worldOpens in new window through trade, capital and information flows but, at the same time, with a growing risk of fragmentation and profound geopolitical changes and risks.
  • The climate emergency, which has become a key social and economic policy priority.
  • The acceleration of technological change, for example in artificial intelligence, which affects all the economic and social dimensions.
  • Demographic dynamics leading to a more elderly society.
  • An increased mistrust of institutions and global political polarisation.

All of this has resulted in a more uncertain and complex environment which, on the domestic front, is reflected in numerous (new and old) challenges for the Spanish economy. We have recently analysed them in our Annual Report 2023Opens in new window and summarised them in this blogOpens in new window.

The Banco de España has contributed decisively to economic policy-making to address this complex situation. Not only in Spain, but also at European level, as in the case of the Eurosystem’s monetary policyOpens in new window, banking supervision (through the Single Supervisory MechanismOpens in new window), macroprudential oversight (through the European Systemic Risk BoardOpens in new window) and the resolution of institutions (through the Single Resolution MechanismOpens in new window). And even globally, for example, through the Financial Stability BoardOpens in new window or the Basel Committee on Banking SupervisionOpens in new window, which I have had the honour of chairing since 2019.

After so many shocks, the economic situation has stabilised and per capita income has returned to its pre-pandemic level. The fight against inflation is on the right track and this has allowed us to start cutting interest rates at the meeting of the Governing Council of the European Central Bank (ECB) on 6 June (which was also my last). Meanwhile, financial stability has been preserved and our banking system’s solvency and liquidity levels are now higher than before (see Chart 3).

Chart 3

Indicators of financial stability

SOURCE: Banco de España.
-The data correspond to the aggregate of Spanish deposit institutions at end-Q1 each year.
-The non-performing loan ratio is calculated as the ratio of non-performing loans to total loans for the entire resident private sector (households, non-financial corporations and financial corporations).
-The CET1 capital ratio is calculated as the ratio of common equity tier 1 (mainly ordinary shares and reserves) to risk-weighted assets.

However, Europe is falling behind the other major world economies. And Spain has failed to achieve sustained convergence in per capita income with our European peers for more than a decade. Reversing these trends will require ambition and reaching major political agreements. All this in a context of uncertainty and change that requires us to remain vigilant.

What has been the key to addressing these and other internal challenges at the same time?

The Banco de España is a sound institution. Its strength is underpinned by its deeply rooted institutional values (see Figure 1) and its highly-qualified staff, who are firmly committed to public service. Two main pillars stand out among these values: analytical rigour and independence.  

Figure 1

Values are integrity (honesty, ethics and reliability), excellence (rigour, quality and efficiency), transparency (communication, clarity and accountability), independence (autonomy, impartiality and objectivity), public-service vocation (commitment to society, the general interest and responsability)

SOURCE: Banco de España.

These ingredients undoubtedly help. But in a large and complex institution, strategic planning is critical to responding to major challenges.

Strategic planning and the external evaluation of our actions are essential to respond to these major challenges, modernise the Banco de España and help us become an outstanding central bank committed to society

The Banco de España’s Strategic Plan 2024Opens in new window (our first) has allowed us to define our vision for the future and guides our actions. Not only has it helped us to respond to challenges and fulfil our mission, but also to modernise the Banco de España, whose ambition is to become an outstanding, dynamic and trustworthy central bank that is committed to society.

The five main objectives of the Plan are shown in Figure 2.

Figure 2

The five main objectives of the Plan are to improve the capacity to identify and react promptly to risks to economic and financial stability, to modernise the Banco de España in order to make it more efficient, flexible and innovative, to promote excellence through talent management and commitment to employees, to increase the Bank´s influence over its areas of activity and to generate greater confidence in the Banco de España and greater value for society.

SOURCE: The Banco de España launches its Strategic Plan 2024Opens in new window.

A key component is transparency, which is crucial for building trust in the Banco de España. In this respect we have strengthened our accountability to the public in the last few years – before parliament and through public interventions and the open evaluation of our work.

We recently carried out an accountability exercise under the Strategic Plan 2024Opens in new window, whose main initiatives are summarised in Figure 3. 

Figure 3

SOURCE: Banco de España.

Our independent external evaluation programmeOpens in new window is another important pillar in promoting transparency. It is also key to putting our commitment to continuous improvement into practice.

Over the years we have made significant efforts to reach out to the public and raise our international profile, thereby improving our external image.

Another central pillar of our strategy, although less visible from the outside, is the internal changes we introduced to improve our effectiveness and efficiency, make our work more consistent and allow for more flexibility.

Overall, we believe that in these years we have contributed to boosting the presence, impact and external influence of the Banco de España in its various areas of operation, as well as to significantly improving the flexibility, agility and efficiency of its internal organization.

Looking ahead, flexibility and adaptability will remain essential. Further progress will therefore be needed in these dimensions to ensure that the Banco de España can provide a cross-cutting, comprehensive and agile response to the myriad challenges it will face over the coming years.

It has been a privilege to be the Governor of the Banco de España and lead such a skilled team of people committed to the institution’s objectives, which ultimately strive to improve our citizens’ well-being. My last words are of gratitude to all of them, with the conviction that they will maintain this same commitment to public service in the new chapter that is now beginning.

Pablo Hernández de Cos
  • Governor
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