Therefore, although Spanish institutions have already largely adapted to these regulatory changes, there are still some outstanding reforms to be applied, which will require them to make further adjustments. Lastly, the main medium-term challenge lies in the new competition framework derived from the new technologies and progressive financial disintermediation. New technologies can quickly change the competitive framework by increasing competition in some segments. That will oblige institutions to anticipate changes and adapt to the new environment, even though this entails a rise in costs in the short term, which will be difficult to manage in an environment of low profitability. One of the areas where the highest degree of penetration by new entrants has been observed is payment services, particularly retail payments, which is causing a decline in income from transactional services. Furthermore, adapting to these technologies may involve greater operational, and even reputational, risks, with aspects such as cybersecurity gaining in importance. But new technologies also entail fresh business opportunities for banks. On one hand, these technological changes allow immediate remote access to a broad range of financial services, which may enable general administrative expenses to be reduced. The relatively scant penetration of digital banking in Spain suggests that there is ample scope for this form 7/8  of banking to grow, providing Spanish banks with an opportunity to expand their business. The application of artificial intelligence and the use of large databases with real-time information (known as big data) may also provide for significant efficiency gains.

Indeed the key results of Tobin’s and Markowitz’s work are labelled the “benefits of portfolio diversification”. Managers and academic economists have long been aware of the necessity of taking risk, as well as returns, into account when making portfolio decisions. The first pioneering contributions on money and asset pricing were therefore made in the 1950s, with the analysis focusing on the case of a closed economy. In this setting, for given risks, a rise in the expected excess returns implies a lower demand for money. In the course of the last 20 years, the globalisation of financial markets owing to the reduction of transaction costs and the enhancement of information flows has increased the share of global wealth invested outside investors’ home jurisdictions. The models of Tobin and Markowitz have become, therefore, much more complicated when extending the analysis to the global environment. Portfolio theory suggested that assets should be considered imperfect substitutes for each other, with the differences in their expected yields reflecting their marginal risks regardless of the economy being open or closed. However, the representative agent model is no longer applicable in the case of an open economy, as the presence of international capital flows requires either asymmetric information or heterogeneous belief among various agents. This makes the theoretical and empirical efforts to search for policy solutions a very complicated business. In an open economy setting, for given risks, a rise in expected excess returns does not necessarily imply a lower demand for money.