Banking in times of change

01Banking in times of change


Stability and resilience in the banking sector are vital for dealing with the disruptions and transitions under way, not least climate change. The path from doom to boom isn’t straight, but together, we can get there.


You know you’re living in interesting times when a central banker borrows the title of a surreal, mind-bending movie to describe the current context: “Everything, everywhere, all at once.” Fabio Panetta, executive board member of the European Central Bank (ECB), rattles off the list of shocks that have rocked the global economy over the past three years — “a pandemic, severe supply chain disruptions, a war, an energy crisis and now tensions in banking markets” — all of which present leaders like him with an unenviable challenge: navigating between underreacting and overreacting, either of which risks making a bad situation worse. As he notes, “There are no simple solutions.”

We’re facing what’s known as a polycrisis — a cluster of catastrophic events that’s affecting the banking industry like never before. And given that banking is fundamental for financing other essential sectors, from healthcare to energy (each of which are undergoing their own profound transformations), it is vital that there be stability and resilience in the banking sector like never before.

Fortunately, as experts at IESE’s Banking Industry Meeting maintained, we are better equipped than ever before to deal with the disruptions and transitions under way.

And while the pandemic is pretty much in the rearview mirror, for those who shoulder responsibility for ensuring our financial systems remain safe and reliable, the complex new environment that has arisen post-2020 remains top of mind.

In this report, we share what the banking executives, central bankers and assorted other supervisors and regulators who gathered at IESE Madrid in May 2023 are doing. We also share research by IESE professors and contributions from IESE’s 5th Future of Banking report to suggest how leaders are using the tools sharpened by previous crises to confront whatever is next.

Taking the long view

It could be worse. Recalling the 2007-08 global financial crisis, ECB Vice President Luis de Guindos says many of its lessons have been taken to heart. Indeed, when Silicon Valley Bank collapsed in early 2023, followed by Signature Bank and First Republic Bank, the global financial sector braced for the worst, but the contagion seems to have been contained — for now. (See IESE Prof. Mireia Giné’s interview with Jamie Dimon on how JPMorgan Chase helped to avoid a history repeat.) This doesn’t mean we’re out of the woods yet. Clearly, there were oversight failures. But it does mean the banking system seems to be more resilient now than it was before.

We’re in a period of rebuilding trust again

Harold James, an economic historian at Princeton University, writing in the Future of Banking report, puts it into historical perspective. The failure of Silicon Valley Bank was a classic example of a bank run — a common pattern in the 19th century, less so following the Great Depression of the 1930s, after which the banking industry spent decades rebuilding trust. Now, we’re in a period of rebuilding trust again. And many of the conditions that precipitated some of the most important productivity gains and transformative innovations of the last century — “dramatic shortages, conflict and war, when economic advantage appears as a zero-sum game and fiscally driven inflation drives up prices” — once again exist, potentially providing fertile ground for another wave of technologically driven progress and, yes, even a return to globalization. For James, “If the near and medium term is very uncertain, I am more confident about the longer term outlook … our future is not necessarily that bleak.”

Taking the long view is important to avoid descending into a so-called doom loop. Today’s fears are real, but we must not let them “draw focus and resources from tackling (their) causes,” as one think tank warned, “which then creates more severe consequences, diverting even more attention and resources, and so on.” The banking industry is working to resist this. Let’s look at how in relation to one of the biggest long-term fiscal risks: climate change.

Banks’ role in net-zero goals

According to the Future of Banking report, “The war has demonstrated the negative consequences of fossil-fuel dependence in resource-poor regions and strengthened the commitment to decarbonization in both Europe and the United States. This has led to a debate on the effectiveness of existing climate finance tools and the need for new financial instruments, including sovereign debt instruments, that could both accelerate the climate transition and protect sovereigns and investors against climate and transition-related risks, and the question of whether debt relief should be linked to climate action.”

Speaking at IESE in May, Onur Genç, the CEO of the multinational bank BBVA, broke down the enormity of the sustainability challenge. Getting to net zero by 2050 requires an estimated $275 trillion in cumulative spending on physical assets, which he said would amount to each country spending 8% of its GDP every year if we had any hope of reaching that goal. In the case of Spain (where BBVA is headquartered), it should spend at least 100 billion euros a year on net-zero goals for the next three decades, he said.

Sharing the stage with Genç was Alejandra Kindelan, head of the Spanish Banking Association (AEB by its Spanish initials). Especially in Europe, where capital markets are not as developed and deep-pocketed as they are in the United States, “banks are at the center,” she said. “Who has the financing capacity? In Europe today, it’s the banks.”

Even though banks have their own sustainability challenges, both Genç and Kindelan agreed that banks play key roles in accompanying clients on their decarbonization journeys, potentially opening up new business opportunities along the way. As banks’ portfolios of heavy CO2 emitters go greener, their climate-risk exposure goes down.

One way that BBVA seeks to mitigate climate risk, for itself and for its clients, is by having teams specialized in thematic areas such as power, auto, real estate and inclusive growth, who are then able to work with clients to achieve their sustainability goals. So, for retail customers, BBVA is able to offer green mortgages and financing for solar panels and electric mobility. It is financing new sustainable technologies through venture capital funds such as Hy24, specialized in hydrogen; Lowercarbon, focused on carbon capture, use and storage technologies; and Fifth Wall, dedicated to sustainable building materials in the real-estate sector. The bank also helps its corporate clients with financing via social, green and sustainable bonds, and acts as an investment adviser, connecting customers to the latest in sustainable debt instruments.

One of those instruments was the European Investment Bank’s first green bond, known as the Climate Awareness Bond (CAB) when it was launched back in 2007. Since then, the public sector’s use of novel financial instruments keeps growing. The Future of Banking report notes that such funding solutions, especially in developing countries, may profoundly change “the architecture of international finance, including … debt instruments that automatically adjust debt service in the event of large exogenous shocks (such as climate catastrophes) and debt instruments that encourage debtors to take actions that reduce the vulnerability to such shocks.” Such instruments can help bring money where it’s most needed and mitigate climate risks for all.

Banking in the line of fire

Knowing that climate shocks are all but inevitable, how else can banks prepare? New research by Carles Vergara and Xavier Vives (“Climate Risk, Soft Information and Credit Supply” cited by Central Banking) suggests it’s not only the multinational banking groups that have a role to play when dealing with global problems like climate change; small local banks can make a big difference, too.

The IESE finance professors studied 20 years’ worth of bank loan data in Spain, which, like many countries, is enduring hotter, drier weather conditions, leading to more wildfires. How do these fires affect lending activity? And what are the effects on local economies, given that local businesses devastated by climate-related disasters need credit to help rebuild and keep workers employed after major losses.

How do wildfires affect lending activity?

While consolidation — merging lots of smaller banks to end up with big, diversified ones — is the received wisdom, their analysis shows that small local banks serve an important function. “Central bankers will tell you that to address, mitigate and hedge climate risks, you need big banks, because when there are wildfires in Greece, Spain or Italy, for example, a big bank operating at the European level can then diversify those risks,” says Vergara. “While that’s true to a degree, we find it’s more nuanced than that.”

“Credit generally decreases whenever there is a big climate disaster. But we found the decrease was much less pronounced in areas where there were more local banks.”

He explains why: “There’s a lot of ‘soft’ information gathered at the local bank level: they’re close to their customers, so they can really evaluate and take care of local interests, close to the ground. And after a major climate event, like a drought or a wildfire, local banks are much better positioned to identify which are or aren’t the good local players that they should keep lending to.”

Focusing on areas where there had been a climate event, the researchers found more credit was extended in areas with local banks versus those without, and consequently fewer local job losses. “We probed whether this might be because these smaller local banks were prepared to take on more risks, given that they lacked the investment opportunities available to the big banks, but we didn’t find this to be the case. We checked the default rates of these apparently riskier loans, to see if they were higher in these areas, but we didn’t find a significant increase in defaults.”

While much of the recent conversation has focused on greater scrutiny of mid-size banks like SVB, Signature and First Republic for their ability to inflict outsized losses, it’s worth taking a measured, contextualized approach, so as not to end up with only too-big-to-fail institutions. Speaking at a Spanish central bank conference in June 2023, U.S. Federal Reserve Chair Jerome Powell acknowledged that “the size diversity of a country’s banking system should be preserved” for the sake of financial stability. That may include “a need to strengthen our supervision and regulation of institutions of the size of SVB,” he said, adding that he welcomed proposals for how to do this appropriately.

Accounting for crises

Another initiative to build resilience in banking is a big accounting-rule change that most of us have never heard of. Dubbed “a silent revolution in banks’ business models” by McKinsey & Company, and a “game changer” according to Moody’s Analytics, this new rule aims to make banks more prepared to deal with bad loans.

While only bank accountants might know the big change as International Financial Reporting Standard 9 (or IFRS 9), it’s been in Europe since 2018. That’s enough time to see how a rule rolled out after the global financial crisis has worked out when the next global crisis hit.

First, a quick take on what IFRS 9 is meant to do. To help banks prepare for a merely bad situation taking a sudden turn for the worse, IFRS 9 started requiring banks to partly provision for their loans upfront in expectations of losses in their first year. Reasonable expectations of losses became the new (forward-looking) standard. In contrast, under the old rule, which IFRS 9 replaced, some provisioning was not required until real trouble was obvious, in the form of very late repayments or even no repayments at all. In retrospect, that appeared to be too little, too late.

Thus, to avoid bank failures that then turn into costly rescues negatively impacting governments and taxpayers, IFRS 9 is meant to require banks to take more responsibility for their lending earlier on by looking ahead.

Instead of “too little, too late” is it “too much, too soon” for already strained banks?

While that sounds nice and cautious on paper, critics say this new rule is an extra burden. Instead of “too little, too late” is it “too much, too soon” for already strained banks? Would IFRS 9 prove to be procyclical — a term that effectively makes the good times better, but the bad times worse? The rule change was meant to avoid exacerbating problems in a crisis when banks need all the resources they can muster. Has it succeeded so far? A natural test for this important question came during the pandemic.

Taking advantage of this naturally occurring experiment, IESE accounting professors Germán López-Espinosa and Fernando Peñalva analyzed Spanish listed banks in the years just before and after IFRS 9 went into effect in 2018, and followed them through the COVID-19 crisis.

Offering initial evidence where there was none before, the study offers some good news and some not-so-good news. Small banks that dutifully anticipated possible credit losses with the new rule ended up lending less money. But observers note there was no effect on large banks, and everyone increased their regulatory capital — their buffer for unexpected losses that may be crucial in a crisis — as IFRS 9 was introduced. Then, when COVID-19 hit, only large banks kept building up their capital reserves, while small banks did not.

In interpreting the results, the co-authors caution that truly unexpected shocks are, of course, impossible to plan for. Still, the evidence suggests that the new accounting rule ends up being less procyclical than the rule it replaced. That is to say, only small banks during a crisis saw procyclical effects from the rule. Meanwhile, large banks during a crisis and all banks in non-crisis times were more protected from downturns, which should make the banking system safer overall.

The trend in accounting, and elsewhere, is to set our gaze on the future. But predictions add headaches, because they can never be as reliable as past results. It’s essentially a tradeoff familiar to many professionals in many different fields: more relevant numbers for our future remove some of the comfort of reliable numbers from our past.

Even so, taking an unexpected crisis like the pandemic to study a better response to another future crisis is a worthy undertaking. And the work continues, anticipating its usefulness for the next crisis, be it in banking, public health, the climate, geopolitics or some combination.

A return to shared responsibility

Whether climate change or financial regulation, “we’re now in one of those rare moments in which we’re set to work before the problem has appeared,” David Vegara, executive board member of Banco Sabadell and former Spanish State Secretary for Economic Affairs (2004-09), told the IESE Madrid gathering.

“I don’t mean to say climate change hasn’t appeared — it has — but I’m referring to the problem of climate change and its relationship to banking. Typically, regulation is about reacting to big events: a bank fails, and then we learn how to manage its problem better; something happens in a telecom company, and then we learn to regulate it better. Now, what we are dealing with is a lot of things happening at once, and it’s critical that we all — the authorities, the supervisors, the industry regulators — read the situation well together. And when we see something that isn’t working, we change it quickly.”

It requires us to be flexible

Sharing the stage with Vegara to speak on “Challenges in Banking and Energy” — two sectors of strategic importance these days — was Beatriz Corredor of the energy and telecom company Redeia. The good news, for her, is that “today we are equipped with international, financial, political and governance instruments to face these challenges better. It requires us to be flexible. All companies, in all sectors, must adapt, align their strengths and assume their social responsibilities together.” (Read the full interview with her later in this report, and see the infographic on other sectors going through times of radical change that will need the banking industry’s help to finance their transition.)

A delicate balancing act

In recent months, both the U.S. Federal Reserve and the European Central Bank raised interest rates again, acknowledging that inflation, although coming down, is still projected to remain too high for too long. Borrowing costs have increased steeply, slowing loan growth. Tighter financing and dampening demand are considered key conditions for getting inflation down closer to target levels.

It’s a delicate balancing act: reining in inflation without forcing the economy into a hard landing that ends up costing jobs and inflicting more financial damage. As central banks around the world look across borders to see how the balancing is going elsewhere, there’s hope that global cooperation will continue — a return to the kind of globalization that Harold James spoke of, characterized by “important productivity gains … the removal of impediments to commerce, but also a consensus around a stable and internationally applicable monetary framework.”

“There were at these moments … revolutions in government, when public authorities took on many more tasks concerned with managing the economy, including guiding the course of trade liberalization … in which there is both more fiscal activism, in the sense of providing insurance to complete markets … and also a much closer awareness of the importance of policy effectiveness, of assessing how money is spent (in order to assure that it is spent productively). The banking turbulence of the past weeks, and reflection on the fiscal cost of bank rescues, will only increase the demand for close monitoring of the effectiveness of public spending.”

After all, it is only through socially responsible global cooperation that we are able to face up to the big, existential challenges facing humankind today.

WATCH The financial consequences of the war in Ukraine, a panel discussion moderated by Xavier Vives and featuring Harold James, among others, speaking during the 49th Annual Meeting of the European Finance Association held at IESE in August 2022.

To know more

Climate Risk, Soft Information and Credit Supply,” working paper by Carles Vergara and Xavier Vives, with Laura Alvarez and Sergio Mayordomo of the Bank of Spain (2023).

Carles Vergara acknowledges support from the State Research Agency of the Spanish Ministry of Science, Innovation & Universities and from the European Regional Development Fund (TED2021-131238B-I00, MCIN/AEI/10.13039/501100011033) and NextGenerationEU/PRTR.


Evidence from the adoption of IFRS 9 and the impact of COVID-19 on lending and regulatory capital in Spanish banks,” by Germán López-Espinosa and Fernando Peñalva, is published in the Journal of Accounting and Public Policy (2023).

Germán López-Espinosa and Fernando Peñalva acknowledge support from MCIN/AEI/10.13039/501100011033 and PID2019-105227RB-I00, and PID2019-111143GB-C31, respectively.


A case study on the Spanish savings bank Abanca (SM-1699), by Josep Tapies, Jorge Soley, Chris Eufinger and Xavier Costa, is available from IESE Publishing (in Spanish).

Competition and stability in banking: the role of regulation and competition policy by Xavier Vives (Princeton University Press, 2016). Read “Reconciling competition and regulation in banking” in IESE Insight.

Banking on climate

Banks are increasingly including climate risk in their supervisory role for the sake of financial stability.

By Nuno Fernandes

When it comes to tackling climate change, a big funding gap exists between the urgent need for capital (demand) and those who can provide it (supply), the latter being where banks and other financiers come in.

While banks themselves may not be the worst polluters, the funding they provide to clients who are heavy emitters makes them indirect contributors to climate change and exposes them to additional risks, especially if their borrowers face significant negative financial impacts (due to severe weather events, losses in stranded assets or future cashflows affected by the climate transition). For this reason, banks are increasingly including climate risk in their supervisory role for the sake of financial stability, using prudential green policies to incentivize a transition to low-carbon assets.

There is ongoing discussion on how to integrate climate-related risks as part of the internationally agreed Basel III regulatory framework for banks. If, as is argued, green assets entail lower physical and transition risk, this could imply lower financial risk for credit institutions. In which case, capital ratio requirements could be used proactively, i.e., they could be reduced for green assets (loans and bonds) in the balance sheet. Doing so would free up bank capital for more green loans and incentivize banks to expand their green loan portfolios.

Another action would be to aggregate many small-scale green loans or mortgages into securitized assets, which could be an attractive financial product for institutional investors, helping to mobilize finance for small-scale businesses and projects.

In Europe, the vast majority of banking assets are supervised by their respective national central bank and/or the European Central Bank (ECB) under a single supervisory mechanism. Given that climate change is seen as a risk that affects financial institutions’ metrics and actions (underwriting, credit, market, operational and liquidity risk), the ECB, in conjunction with national authorities, has made the following recommendations:

Banks should anticipate, monitor and mitigate short-, medium- and long-term climate risks at all stages of the credit granting and management process. Climate risk assessments should also be made in relation to capital planning, liquidity, counterparty risk rating, pricing, valuation, liability and reputation.

Banks should internally report aggregated risk data on their climate-risk exposures, so that management bodies can make informed decisions. Climate risk should be incorporated into the risk appetite framework. Senior management, as well as boards of directors, should have sufficient knowledge of, and responsibility for, these areas, with relevant information disclosed and key metrics integrated into their nonfinancial reporting.

SOURCE: The book Climate Finance, by IESE professor Nuno Fernandes, provides a comprehensive overview of climate-related financial issues for senior executives, bankers and others. Read Climate finance: not one solution, but many.

Sectors in transition

02Banking in times of change


Check if you meet any of the four conditions that precede a market disruption. And then prepare yourself to meet the challenges!


The probability of a market disruption is high when at least two of these four situations arise:

1 The current market is huge and faces intense financial pressures

2 The current market is unable to satisfy changing user needs and expectations

3 There are market inefficiencies

4 Entry of new market players with novel business models

The following industries are going through times of radical change and will need the banking industry’s help to finance their transition. Is yours one of them?


1 Ambitious targets to decarbonize entire economies require a boost in clean energy supplies, precisely when costs are running high because of the war in Ukraine. This demands major financial investment in clean energy and energy security, akin to the U.S. Inflation Reduction Act.

2 There is great uncertainty over energy generation at current levels being able to meet user needs.

3 There are imbalances between supply and demand during the transition from fossil fuels to renewables.

4 Synthetic fuels and green hydrogen are vying for market position. Which solution(s) will win out?


1 Advanced economies are spending more and more of their GDP on healthcare in a context of higher inflation, growing debt and slower growth, just as the green and digital transitions are vying for the same dwindling funds.

2 Aging populations are placing greater demands on healthcare systems that are no longer fit for purpose.

3 Studies show 30% of the money currently being spent on healthcare does not translate into better health outcomes.

4 Big tech giants such as Amazon, Apple, Google and Microsoft are ramping up their investments in the healthcare market.


1 Insurance accounts for a sizable and growing portion of the global economy. High inflation means higher claim payouts, resulting in more expensive premiums and some customers dropping coverage or switching to cheaper policies.

2 There’s a coverage gap for over 50s and for youth, demanding more flexible, pay-as-you-go options.

3 The contracting process, as well as the resolution of certain claims, can be complicated and cumbersome.

4 New insurtechs, using AI, machine learning and the internet of things (IoT), automate a lot of processes traditionally handled by humans, offering digital savvy customers an easier experience adjusted to their needs.


1 Large fluctuations in the price of raw materials, growing power of own-label brands, and a complex regulatory environment. The war in Ukraine isn’t just disrupting local supply chains but threatens to provoke a global food crisis.

2 Growing demand for healthy, sustainable options. Consumers seek convenience and new experiences.

3 Numerous intermediaries, long transport routes and overstocking contribute to excessive waste across the whole chain.

4 Foodtech and agritech startups, online home delivery and direct selling by producers are reshaping traditional models.


1 The sector must pay for the transition to electric, even as the car market is stagnant or crashing.

2 Despite growing demand for electric vehicles, most users still can’t afford them.

3 We are still far from the circular economy. Charging stations are not widespread. Lack of workers skilled in the new technologies.

4 Chinese EV manufacturers are gearing up to enter Western markets. The agency distribution model, whereby original equipment manufacturers (OEMs) bypass traditional dealerships and sell cars directly to consumers, is gaining traction.

SOURCE: Based on conversations with directors of IESE Industry Meetings: Juan L. Lopez Cardenete (Energy), Nuria Mas (Healthcare), Miguel Duro (Insurance), Miquel Llado (Food & Beverage) and Marc Sachon (Mobility).

Find out more about upcoming Industry Meetings at

Interview with Jamie Dimon

03Banking in times of change


“Our government invited us and others to step up, and we did.” That was the statement delivered by the well-known American banker, Jamie Dimon, on May 1, 2023, in announcing that JPMorgan Chase had agreed to rescue the troubled First Republic Bank from bankruptcy.

First Republic was the third U.S. regional bank — along with Silicon Valley Bank and Signature Bank — to collapse in early 2023, following bank runs that raised fears of yet another global financial meltdown. JPMorgan Chase credited its “financial strength, execution capabilities and business model” to cover First Republic’s deposits, thus minimizing costs to the federal government’s insured deposit scheme and avoiding a 2008-style taxpayer-funded bailout of the banking sector.

Dimon touched on this subject during a previously scheduled interview with IESE professor Mireia Giné, head of the Financial Management Department at IESE, which just so happened to fall on the same day as the First Republic acquisition.

Here, they discuss that rescue and other challenges, from regulation to competition, which require that “we stay vigilant, hungry, adaptable, fast and disciplined … being a source of strength in difficult times” (in the words of Dimon’s Letter to Shareholders).

MG: What were the reasons for rescuing First Republic?

JD: First, it wasn’t just a gift. It had to make sense to our shareholders, be complementary to our existing business, and help advance our strategy. Second, we had to be able to handle it financially and hedge our exposure, which we could do. And third, it was very good for the U.S. banking system overall, which is why we stepped up when the government asked us to.

MG: This crisis reminds us that if we have failing banks, even if they are small, the consequences are systemic. Indeed, much of the regulation put in place since 2008 was designed to prevent large-scale contagion and government bailouts. The question now is: Is it working?

JD: Things seem to be calming down. However, the banking system always has a bit of fragility built into it. For those who have too much interest rate exposure, be it inside banking or inside real estate, you should fix it because you don’t know if those rates are going to go back up to conquer inflation. These particular banks had a lot of interest rate exposure, a lot of money loaned at low rates, and a lot of uninsured deposits concentrated in a few large holders, which can — and did — move quickly. Those things were known and disclosed and shouldn’t have come as any surprise. It should serve as a reminder that scary things you may not think about in your normal day can suddenly make other people panic.

MG: Was there a lack of supervision and regulatory oversight of these banks?

JD: We have hundreds of regulations. One CCAR (Comprehensive Capital Analysis and Review stress test for large U.S. banks) is 200,000 pages long. The problem with regulations and tests is that people think everything is solved, and they get lulled into a false sense of security. In the case of Silicon Valley Bank, there was a resolution recovery test but it wasn’t even taken off the shelf. I’m not against regulation, but the risks I’m really worried about are cyber, pandemics, war, recession, and instead I’ll have thousands of people working for six months on a CCAR test. I would much rather have a real conversation about which things need to be test-based, which things are common sense, what rules need to be put in place, and what your people should be focusing on in the here and now to stop something from happening. That, to me, is a better way to handle risk.

MG: Regulation adds complexity. The Dodd-Frank regulations passed in the wake of the 2008 financial crisis were loosened in 2018 ostensibly to reduce some of that complexity. Yet it is the loosening of those restrictions that some say contributed to the recent crisis. In Europe, the regulatory framework for small and medium banks remains much more stringent, particularly on liquidity constraints. But here we have our own set of challenges, such as fewer alternative saving propositions and therefore less competition. What other risks should European banks be looking out for?

JD: Due to the pandemic, we had huge fiscal spending and quantitative easing, more than the world has ever seen, and that is still in the system. We should be prepared for interest rates of up to 6%. I don’t think inflation will come down low enough anytime soon.

MG: So, it seems we’re transitioning from a long period of low interest rates to higher interest rates, and from quantitative easing to quantitative tightening, which is draining liquidity and increasing credit risk. Beyond this macro context, what about the challenges at the level of business transformation, namely when it comes to technology?

JD: We’re investing in more engineers and data scientists for AI research. We already use machine learning to detect consumer fraud, to help make hedging decisions in real time, and to offer clients products and services that might be relevant to them. And these are just the tip of the iceberg. The digital AI cloud is growing dramatically. We currently have 3,000 people working in AI, and I think that’s going to double every three years, for decades.

MG: Once these levels of automation reach vast levels of anticipation and predictability, I wonder what will happen to relational banking. I guess the jury is out on whether we are moving toward a more transactional type of banking model, or if AI will help boost relational banking in some way.

“I consider us guardians of a stable financial system — I’m proud of that”

MG: How do you envision the payment ecosystem changing over the next decade?

JD: While I think cryptocurrencies are a complete farce, I remain very interested in blockchain, which I’ve been following for a long time now. Basically, it’s an electronic ledger, which lets you move money around almost instantaneously, and everyone can vet it and trace it, end to end. It will also enable you to tokenize assets. So, you could buy 1% of an asset, for example, and it’s fast, safe, secure and fully traceable. However, it may take another five to 10 years before blockchain goes mainstream, because so far very little has been effectively implemented. But the potential is there.

MG: What do you make of the collaboration between Apple and Goldman Sachs for Apple to offer banking services?

JD: It remains to be seen whether that works. With Apple, they have huge amounts of data, but they’re a different ecosystem from a bank. We hold money, we move money, we manage money, we lend money. If all Apple is doing is offering the same services but cheaper — if Apple is just trying to front or “white label” the banks — that’s not a model that’s going to work so well.

MG: But Apple has a strong brand, a big level of trust, massive scale, a very large balance sheet with tons of resources, vast amounts of data. And we know retail goes hand in hand with finance. So why wouldn’t people pay through the tap of an iPhone, without the need for bank accounts or Visa or MasterCard? Is the next step to start collecting deposits, offering a little bit higher interest rates than what the banks currently offer? Might this change the landscape of competition for deposits? Is there a window of opportunity for non-banks?

JD: It’s an open question. Certainly, there are competitors when it comes to payment providers, such as Stripe or PayPal. But the issue I have with some of these neobanks is whether they are subject to the same customer protections that traditional banks provide. I consider us guardians of a stable financial system — I’m proud of that. And some of these neobanks or fintechs don’t have the same obligations. I believe the same products should be regulated the same way, especially if they carry the same risks. There can’t be a regulatory burden for us and not for them. Still, I think we can acknowledge the great services that some of these fintechs have come up with — things we could have done ourselves but we didn’t or they beat us to it or they simply did it better. I think a company should be self-critical.

MG: Which brings me to my final question related to management style: Could you talk about this need for having “sparring partners” who challenge you, to help keep you sharp?

JD: I have 12 direct reports but in times of crisis we might convene many more people, and we meet several times a day, as opposed to once a week, and anyone can put stuff on the agenda, so it isn’t just my agenda. And if you come, I want the best you have, and you bring who you’ve got to bring. I don’t want you to come and say, “Isabella downstairs is the expert in that.” I want all the experts there. The more people involved, the more instant the reaction, and the more likely it will be treated seriously.

MG: What would you love for your legacy to be?

JD: I want to leave the company better than I found it. No matter what you do — you could be a doctor, a nurse, a teacher, a janitor or a CEO — you try to contribute to making the world a better place the best way you can. I always appreciate hearing stories of people who made the world better, or people expressing gratitude for someone who impacted them or the world for the better. And even more important to me than the company is my family. Those are things that I would like to be remembered for.

Interview with Beatriz Corredor

04Banking in times of change


When Beatriz Corredor entered politics two decades ago, corporate social responsibility was hardly considered a priority or even a concern. “There was a lot of talk about accounting, but we had forgotten to be accountable to society. And there’s no economic return without social return,” says Corredor, former Spanish government minister of housing from 2008 to 2010.

At IESE’s Banking Industry Meeting, organized by the Center for International Finance in Madrid in May 2023, Corredor spoke about “Challenges in Banking and Energy,” two sectors of high strategic importance. As the chair of Redeia, which manages energy and telecom infrastructures across Spain, and as an adviser to the nonprofit Women Action Sustainability, she believes that “Spain has a duty to become the renewable engine of Europe.”

Here she talks about how Redeia is dealing with the green transition, digital transformation and financial sustainability in the context of high inflation, escalating energy costs and changes in consumption habits. She also explains why greater interconnectivity is necessary if the European Union is to benefit from renewables from the Iberian Peninsula.

What do the energy and banking sectors have in common?

Energy, like banking, is the lifeblood that makes societies and countries work. Without energy and financing, there’s little that can get done at the macro or micro levels. Both sectors face two transitions in common: the ecological one, toward a decarbonized economy; and the digital one, toward a fully connected society. We see our company as the backbone of both transitions for the sake of the common good.

Both sectors are facing absolute uncertainty — a time when “nothing is permanent except change,” as the ancient Greek philosopher Heraclitus stated 2,500 years ago. Indeed, it’s worth reminding ourselves that change is the norm, and there’s nothing we face today that we haven’t faced before. In the first part of the 20th century, there was a war, a pandemic and an economic crisis. And the first part of the 21st century is eerily the same: an economic crisis, a pandemic and now the war in Ukraine. The good news is, today we are equipped with international, financial, political and governance instruments to face these challenges better. It requires us to be flexible. All companies, in all sectors, must adapt, align their strengths and assume their social responsibilities together.

In this scenario of constant change, what are the main energy challenges?

First is to stop avoiding the issue of climate change and to start adapting and mitigating. At Redeia, we’re doing this through decarbonization and increasing energy efficiency. We’re making major investments in renewables, which will become a driving force across industries. In this effort, Spain is a global leader.

We are the renewable engine of Europe. However, in order for the rest of the EU to benefit from the renewable energy being generated in the Iberian Peninsula, greater interconnectivity is required. We must be interconnected, not only in terms of finance but also in terms of energy. This is key to security of supply, improving the internal energy market and reducing costs for consumers, whether private citizens or corporate entities.

To what extent are power grids prepared to embrace renewables?

Europe has the largest and best integrated system in the world, and this will make it possible for us to integrate renewable generation. Spain has had smart grids since 2010, while the United States still lacks them, which is why you hear business leaders like Bill Gates desperately calling for improvements there. We must move from a traditional energy generation model of central power plants to a distributed energy production ecosystem, which depends on renewables like sun and wind power.

How do initiatives such as the European Green Deal, the Fit for 55 package of measures or the Net-Zero Industry Act help the green transition?

Regulation is key in our sector, as it can help or hinder change. We must keep taking advantage of the NextGenerationEU funds and the huge amount of financing that Spain’s strategic sectors receive. For this, we need to streamline procedures in order to make the security, transparency and efficiency of the funds, which are public, compatible with getting them quickly into the real economy — to companies.

“There’s no economic return without social return”

Promoting sectors related to energy efficiency is also crucial. The same goes for the energy storage industry, whether through traditional means, like batteries, or new techniques such as renewable hydrogen, still in its infancy. It’s also essential to promote individual power generation, such as through installing photovoltaic panels. To this end, in 2022, six gigawatts of renewable energy were incorporated into the Spanish grid — the equivalent of six nuclear power plants. And we must innovate, for example, in offshore wind energy. This requires going further than others, since the sea depths around our Atlantic and Mediterranean coasts go deeper than the North Sea, making it difficult to install offshore platforms fixed to the seabed.

What efforts are you focusing on to make the digital transformation sustainable?

The integration of power generation is one issue; another is the integration of energy demand. Here we need to assess which kinds of management and operations are more secure for supply, especially considering the huge amount of energy consumed by new data processing centers.

The question of sustainable digital transformation is also an issue of universal connectivity, which has the power to close digital gaps and equalize digital rights in urban and non-urban environments.

In this regard, I would highlight the work of Hispasat — a telecom operator majority-owned by Redeia, whose satellites are able to penetrate areas beyond the reach of fiber optics. The company was recently awarded a rural broadband contract that promises to bring connectivity to 100% of the Spanish territory. In addition, Hispasat has joined the EU consortium to implement IRIS², Europe’s Infrastructure for Resilience, Interconnectivity and Security by Satellite, which will provide high-speed internet through multi-orbit satellites, guaranteeing the security of telecommunications even for defense purposes.

If cybersecurity is critical for banks, imagine its importance for the power grid that feeds the entire economy. The sustainability of the entire ecosystem could hang by a thread.

How does sustainability translate into your financials?

The sustainability of our activities and their alignment with EU goals need to be demonstrated with facts, not eco-posturing. We’ve launched more than 3 billion euros in various green bonds, more than half our financing is already based on ESG criteria, and around half our investors are socially responsible investors.

The opposite of eco-posturing is setting an example, and that means presenting financial information in ways that are understood by the markets. In 2024, the EU’s Corporate Sustainability Reporting Directive will come into force. All companies are currently having an internal governance debate about how to ensure that their financial reporting is understood and merged with their non-financial reporting, and deciding who is going to manage it within the company. At Redeia, we work to ensure that our integrated reporting is not only based on financial data but includes non-financial information, based on a broader concept of “capital” that encompasses intellectual, social and, importantly, natural capital, in addition to our energy and telecom assets.

We need to talk about how sustainability is managed from and for all points of view. What you do and how you impact your entire ecosystem of stakeholders has to be win-win. Value creation has to be for everyone, not just the company’s shareholders. Sustainability boils down to the idea of how you, as a business, impact the environment and how the environment, in turn, impacts you.

How is this impact measured?

That’s the next step: measuring the social impact of our activities. If the corporate sustainability standard is yet to be defined, the social impact standard is even less defined. Due to the difficulty of agreed tools for impact assessment, measurement presents an area for improvement. That being said, in our first Impact Measurement and Management Report 2022, Redeia valued its social and environmental externalities in relation to its net financial profit, using existing international standards, and interpreted the value of the company’s externalities as 14.5 times its net profit. Redeia stands out for its contribution to the development of the environment through the enabling effect of electricity supply and connectivity.

Top dollar?

05Banking in times of change


Weaponization of the U.S. dollar opens a window for the internationalization of other currencies.

This IESE Insight column is based on remarks contained in the 5th Future of Banking report, The international economic and financial order after the pandemic and war, by Giancarlo Corsetti (European University Institute), Barry Eichengreen (University of California, Berkeley), Xavier Vives (IESE Business School) and Jeromin Zettelmeyer (Bruegel), and published by IESE and the Centre for Economic Policy Research (2023).

The U.S. and Europe, reluctant to be drawn directly into war and unwilling to remain on the sidelines, have turned to financial sanctions against Russia as one of their main responses to the invasion of Ukraine.

This use of sanctions begins a new chapter in what’s being called the weaponization of the U.S. dollar. Time will tell whether the sanctions choke the Russian economy enough to impact the course of a war that shows few signs of ending. But one of their perhaps unintended consequences, in a context of geopolitical realignment, is speculation about alternatives to the dollar, particularly the euro and the renminbi.

Any shift away from the dollar as the reserve currency of choice would fundamentally alter 50 years of global monetary order. The dollar has served as the main currency for the settlement of international monetary transactions since the end of Bretton Woods, maintaining its dominance for a number of reasons, among them a lack of alternatives and its first-mover advantage.

There has been little incentive for most market participants to seek out a currency beyond the dollar to execute cross-border transactions, and its pivotal role in the international monetary system has allowed the U.S. to wield it strategically in response to geopolitical tensions.

Historically, financial sanctions have been used in cases involving human rights violations, in defense of democracy, and in situations deemed a potential threat to national security. However, the Biden administration, along with European governments, began imposing the sanctions almost immediately after the February 2022 invasion, without declaring a threat to national security.

This has raised concerns in some countries, mainly China, about the possibility that the U.S. will wield financial sanctions more frequently as punishment against policies or actions it opposes, which in turn has heightened interest in ways to hedge with alternatives to the dollar and to U.S. banks.

Are there alternatives?

It’s worth considering what the feasible alternatives are. In the headiest days of the euro, the pan-European currency was expected to one day challenge the dollar. But the incomplete nature of the monetary union, because of structural factors as well as inadequate institutions, has weakened the euro’s chances of becoming a global currency.

In addition, to oust the dollar, the European Union would have to break from U.S. policies and refuse to cooperate strategically with the United States in imposing financial penalties. This scenario is unlikely, given the general alignment of the largest Western powers; indeed, the EU imposed similar sanctions in response to Russia’s military aggression.

That leaves the renminbi. To be sure, the renminbi is still far from constituting a threat to the dollar as a global reserve currency — representing less than 5% of total allocated foreign exchange reserves and only 2% of cross-border interbank transfers (in contrast, more than 40% are denominated in dollars).

In recent decades, China has sought to promote the use of the renminbi for cross-border transactions, reaching currency swap agreements between the People’s Bank of China (PBoC) and foreign central banks, as well as bilateral agreements with Russia to buy oil and coal in exchange for renminbi.

Even more important, it has developed its own Cross-Border Interbank Payment System (CIPS), established in 2015 as an alternative to SWIFT for settling international payments. CIPS facilitates payment orders between correspondent accounts of different financial institutions, which can participate either directly or indirectly.

No company can afford to ignore geopolitics

CIPS has the potential to transform the international monetary landscape. If Western countries cooperate in imposing financial sanctions in future geopolitical conflicts, some countries might turn to CIPS for the settlement of cross-border transactions and, consequently, use the renminbi as their payment currency.

And if China itself becomes the target of sanctions, the scenario would be even more disruptive. Given China’s dominance of global supply chains, restricting Chinese banks’ access to SWIFT, for example, would leave many countries and companies with no alternative but to make payments in renminbi using CIPS.

That would polarize the international monetary system, with the U.S. and its allies using SWIFT and the dollar for cross-border transactions, while China and its allies settle international transactions through the renminbi and CIPS.

Digital alternatives

Other threats to the dollar’s dominance are digital currencies. Both China and the euro area have made more progress than the United States here. The limitations of stablecoins and highly unreliable cryptocurrencies mean central bank digital currencies (CBDCs) are potentially the most attractive alternative for cross-border transactions.

China is exploring the possibility of implementing a CBDC, known as the e-CNY, in cross-border transactions. The PBoC has been conducting tests to assess the opportunities and risks of the cross-border use of the e-CNY, together with the Bank for International Settlements (BIS) and the central banks of Hong Kong, Thailand and the United Arab Emirates.

The European Central Bank, meanwhile, is examining the potential benefits of a wholesale CBDC that would allow banks to transfer funds directly among themselves and companies to build smart contracts around this structure. A wholesale CBDC could be of use for cross-border transactions and financial services within the euro area itself.

Despite all these efforts, any decline in the dollar’s dominance would be gradual — unless U.S.-China relations collapse and a war of mutual sanctions begins. In that case, countries would have to choose between doing business in the dollar or in the renminbi, polarizing the entire international monetary system and imposing large costs on global trading and the stability of the international financial system.

As such, it is imperative that companies operating globally be aware of these scenarios and how they could potentially impact them. The Russian invasion of Ukraine has served as a warning that no company can afford to ignore geopolitics. In an increasingly complex geopolitical landscape, with Russia and China at its volatile center, the risks for companies will only multiply.

Xavier Vives is a professor of Economics and Financial Management and director of IESE’s Banking Initiative. He is a member of the Advisory Scientific Committee of the European Systemic Risk Board, which was established in 2010 after the global financial crisis to mitigate systemic risk in the EU financial system.

This Report forms part of the magazine IESE Business School Insight 165. See the full Table of Contents.

This content is exclusively for individual use. If you wish to use any of this material for academic or teaching purposes, please go to IESE Publishing where you can obtain a special PDF version of this report as well as the full magazine in which it appears.