Financial Exclusion and Social Vulnerability: A Review of the Post-Crisis Situation in Spain.
In theory, retail banking plays a key enabling role in the foundational economy. It provides products and services that are necessary to everyday life; are consumed by all citizens regardless of income; and are distributed according to population through branches and networks. They make economic transactions possible and govern capital allocation.
In developed countries the use of retail banking services is an indispensable and unavoidable feature of normal everyday life, facilitating payments, savings, risk management (insurance), and lending through intermediating short-term deposits from individuals and SMEs and transforming them into long-term loans for businesses and home-buyers, and credit for consumers. Retail bank institutions take money from local savers but this money does not necessarily return in the same proportion to the community in terms of credit or investments and not always in a responsible way.
In countries like Spain, the years before the crisis, the intensification of credit supply in an environment of low interest rates, high liquidity and competition and economic growth has conducted to an excessive overoverindebtedness specially in low income families. Poor financial literacy, psychological aspects of financial borrower as his attitude, the effect of adverse shocks, both internal and external and pressure of the environment probably have been the some of the causes.
Because of the crisis, the Spanish retail banking sector has lost diversity due to Saving Banks have virtually disappeared. The expectation is that a combination of market competition and attentive but depoliticised regulation can channel profit-maximising imperatives towards the wider social good.
Access to commercial banking services becomes a basic condition to be socially integrated in a modern society, and access to branches is still considered as an essential indicator of financial inclusion. The banking restructuring initiated in 2008 in Spain has implied the reduction of almost one third of the branches network and the almost complete extinction of the saving banks, the social banking model of greatest incidence in the territorial financial inclusion during the past decades. These saving banks have traditionally provided services to the less favoured collectives. The assumption of higher profitability requirements due to a new model of ownership based on shareholders may imply a risk of abandonment or underserving for less profitable customers.
The first objective of this work is to analyze the territorial patterns of disappearance of retail banking branches in Spain during its recent period of restructuring, considering different socio-economic profiles of communities. Following the studied experience in other developed countries, we propose the hypothesis of non-homogenous closure patterns, with higher rates of branches closure in those communities with worse profitability-risk profile. We also analyze the relevance of socioeconomic factors for branches closure, focusing in the great metropolitan areas of Spain. Our results enable us to verify the turn of former saving banks from a social banking model based on inclusivity to a commercial one based on the maximisation of profitability. We have defined additionally parameters to predict the risk of banking desertification of territories and we discuss alternatives to relieve it.
The second objective is to analyze the level and consequences of financial exclusion and underbanking among several vulnerable collectives in Spain. Our study will be conducted at the beginning of 2015 using a survey based on a sample of more than 1,000 individuals belonging to several collectives facing social vulnerability. We will use a cross-sectional analysis considering the different level of access to banking services of individuals and their personal, social and economic situation, in order to predict the factors that determine the risk of be financially excluded or underbanked. Additionally our study will define the main barriers to access banking services for vulnerable groups, as well as their most common difficulties regarding the relationship with banking entities. Finally we will propose a section of discussion about the challenges in the knowledge of financial exclusion and vulnerability in Spain, as the study of causality between both variables.
An additional objective of this paper is to analyze the causes and consequences of overindebtedness in borrowers, lenders and the Spanish Society, interviewing experts and overindebtedness people in order to find an explanatory model.
With these studies we would like to contrast if the financial restructuration in Spain and retail banking behavior is fostering financial and social exclusion. We will be interested in analyze to what extent the over-indebtedness squeezed the family incomes and has produced vulnerability. We want to identify which must be the requirements in terms of regulation (soft and hard) for this sector to prevent those impacts.