Specifically, it seeks to ensure that more funds are accumulated at banks to absorb losses, against a background of heightened uncertainty. In general, all Spanish banks that could legally suspend or postpone the dividends payable out of 2019 profits followed these recommendations. This will allow them to add around 50 basis points in 2020 to the capital buffers that they had before the outbreak of the pandemic. The positive effect of this measure supplements and is boosted by other decisions adopted by various economic authorities, which have reduced the capital requirements for banks (specifically, by releasing a large part of the macroprudential buffers, as mentioned above) and mitigated the impact of the pandemic on their income statements. 4  Moreover, the fact that the authorities’ recommendation has been extended to all banks in most jurisdictions, for the duration of the crisis (a measure that is, in any case, reversible through future extraordinary dividends should more benign scenarios materialise than those envisaged in the current circumstances), has limited the collateral effects of this measure on banks’ capacity to issue capital instruments at an appropriate cost. In fact, although banks’ cost of capital rose significantly after the emergence of the pandemic, following the implementation of the broad raft of measures to mitigate its impact, this increase has been fully corrected, without this recommendation having had an apparently significant impact, at least on most European banking systems. The ECB and the European Systemic Risk Board will review this recommendation before the end of the year.

But let’s look at these four banking systems for a moment, – Canada, Australia, Hong Kong and Singapore. They share two characteristics in common. (i) They are anchored by a handful of banks with a significant share of the domestic market. (ii) These “anchor” banks are closely supervised and regulated. Several economies, including some in emerging countries, which had completely opened up their banking systems and left themselves without local anchors, have now found themselves to be vulnerable. Banking systems need strong anchor players, who are well regulated and diligently supervised, and are able to take the long-view, enabling their interests to be closely aligned with that of the economy. In a crisis too, strong anchor banks may be needed to acquire distressed financial institutions whose failure could otherwise have a systemic impact. But having anchors with a substantial share of the domestic market is not sufficient to ensure resilience. Without adequate competition, they will earn what the economists call oligopolistic rent, rather than serve the needs of an economy by innovating and introducing efficient services. Anchor banks have to be competitive. This is why we have progressively opened up Singapore’s domestic banking sector since 1999. We have allowed greater competition, particularly in wholesale banking where local players are not protected, and increasingly in retail banking too. It has involved some risks. We took a risk. But the result is now widely acknowledged to be stronger and more dynamic local banks, with much improved systems of management, risk controls, technology and expertise.