Revealed: The Run on Banks in Catalonia after the Independence Vote was Fomented by Madrid

The clandestine role of the Spanish government in a run on deposits that drained €29 billion from Catalan banks.

By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.

Just over a year has passed since over two million people in Catalonia voted in a banned referendum to leave Spain. On that day, the separatists were given a brutal lesson in the raw power of state violence. Days later, they were given another harsh lesson, this time in the fickleness of money. Within days of holding the vote, which was brutally suppressed but not prevented by Spanish police, Spain’s north eastern region was forced to watch as one after another of its brand names moved their headquarters, at least on paper, to other parts of Spain.

Among the first companies to up sticks were Catalonia’s two largest banks, Caixabank and Banco Sabadell, which feared being cut off from European Central Bank funding in the event, albeit unlikely, of Catalonian secession. That would have meant no more virtually interest-free loans from the ECB or access to Europe’s repo markets. In other words, a death sentence, as Caixabank’s then president Isidro Faine recently admitted.

The banks were also suffering a gathering run on deposits as customers shifted their money to other Spanish banks, either because they were afraid of what could happen to their funds in the event of independence or as punishment for the banks’ Catalan roots. In little more than a week, the two banks lost tens of billions of euros in deposits.

But what is only now becoming clear is just how central a role the Spanish government in Madrid was playing in fomenting this massive exodus of funds. The Catalan newspaper Ara has revealed that large state-owned companies such as public broadcaster RTVE, rail infrastructure manager Adif, freight and passenger train operator RENFE and Spanish ports, on the behest of Spain’s central government, raided their own accounts in Catalonia during the frenzied days immediately after the referendum.

In one day alone, the state-owned companies withdrew €2 billion from Banco Sabadell. The presidents of these state-owned companies apparently told the bank’s CEO, Jaume Guardiola, that they had received orders to trigger a run on deposits. As much as a third of all the money that left Catalonia during those first days of October belonged to institutions or companies controlled by the State.

The covert ploy worked like a charm. In the short space of just a few days Banco Sabadell suffered a deposit outflow of €12 billion, while Caixabank lost almost double that, according to Ara.

Another senior executive at Banco Sabadell allegedly asked Spain’s then-Economy Minister Luis de Guindos about the apparent cause of the bank run, to which he received the response: “Have you changed your company address yet?” When the executive answered in the affirmative, the minister said there was no longer any reason to worry. Within hours, the deposits of the state-owned firms were back in their accounts.

As soon as Sabadell publicly announced its change of address, the market rewarded it with a nice 5% surge in its share price. The message was clear to the rest of Catalonia’s listed companies, many of which had suffered similar stock-market routs as Sabadell: Get out of Dodge (or at least pretend to on paper) and you’ll recover at least some of your losses.

All they needed was a little creative help from Spain’s central government. On the Friday morning after the independence vote, the Rajoy administration passed a law making it possible for Spanish companies to move their registered address to other regions of the country in just one business day and without having to consult their shareholders, even if their company charters stated otherwise.

Within days, the trickle of companies out of Catalonia had turned into a deluge. The moves, while strictly on paper — something that was not reported nearly as clearly as it should have been — helped change the scales somewhat in Madrid’s information war with Catalonia. Thanks to this strategy, Madrid succeeded in dampening support for Catalan independence among more moderate separatists.

Until the dark days of October 2017, many of those people had been led by pro-independence politicians into believing that separating from Spain would be a painless procedure with limited, if any, economic consequences for either Catalonia or Spain. The exodus of over 3,500 Catalan companies in the last 12 months, to this day almost purely on paper, and the run on deposits that was also partly engineered by the central government in Madrid belie that assertion.

Today, one year on, some of that money has still not returned. Since late Spring of 2017, when things began heating up, the region has lost over €29 billion in deposits, according to the Spanish financial daily Expansión. Before last year’s constitutional crisis, Catalonia held around 15% of Spain’s bank deposits; now, it holds just 13%.

Where did all that money go? Some of it went abroad, but much of it went exactly where Spain’s central government wanted it to go: Madrid, which is now home to almost a third of the country’s deposit base. By Don Quijones.

Italy’s anti-establishment government takes on EU establishment in a struggle that could have major ramifications for the monetary union. Read… Italy’s Debt Crisis Flares Up, Banks Get Hit, as Showdown with the EU Intensifies 
 

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  20 comments for “Revealed: The Run on Banks in Catalonia after the Independence Vote was Fomented by Madrid

  1. Mean Chicken
    Oct 9, 2018 at 8:24 pm

    And there’s yet another example for why Catalonians insist on controlling their own destiny.

    • Alvaro
      Oct 13, 2018 at 8:29 am

      What destiny? Do you live in Spain? Do you know what’s happen now?
      The today’s totalitarism isn’t nation friendly.

  2. Auld Kodjer
    Oct 9, 2018 at 8:59 pm

    Heads in Brussels should hang in shame.

    The head of Rahoy should just hang.

  3. Crysangle
    Oct 9, 2018 at 9:20 pm

    I don’t blame the move out by depositors, as their funds would then have been being held in an unknown jurisdiction. Access to EU or Euro was/is not clear either if there were secession. The same goes for businesses who wanted to be sure to maintain same jurisdiction. Spain had no reason not to help it all in this direction. I don’t know who internationally would recognise Cataluña without Spanish approval , that makes its quest a bit difficult, and Spanish nationalism is not going to dissappear any time soon I think, even if the country swings further left, Andalucia being next to fully reclaim its left government it appears. I think most Spanish, no matter their political leaning, do not want to see Spain disassembled.

    The rest of the confrontation is what it is though. I had to stop reading ara because I get an endlessly hung pageload (in Portugal), tried VPN and it loads. I ended up using naciodigital as reference but even that hung when I tried it now.

    • Old dog
      Oct 9, 2018 at 11:03 pm

      “…I don’t know who internationally would recognise Cataluña without Spanish approval”

      Individuals may sympathize with the Catalan cause but you know well that nations are ruled by interests. Recognizing Catalonia as an independent entity would be bad business.

      I speak Catalan, know the region’s 1,000-year history well and have been following the independence movement closely. My sense is that everything Catalans gained since Franco’s death went up in smoke last year when Madrid imposed the political equivalent of martial law (article 155 of their Constitution) and imprisoned a dozen Catalan leaders. Those who managed to flee, went to Belgium, Switzerland and the UK.

      The idea of an independent Catalonia has been crushed. It will probably take more than two generations to recover from the political and economic losses suffered as a consequence of last year’s confrontation with the central government.

      • Jordi Puxart i García
        Oct 10, 2018 at 2:51 am

        The region has not a 1,000 years history. The province of Barcelona does, the rest of provinces that were part of other counties and the Kingdom of Aragon too but Catalunya don’t. Catalunya was created as a concept in the 13th century and as a political entity a bit later. But the current region was created in the 1930s.

      • Crysangle
        Oct 10, 2018 at 8:17 am

        The trouble I have is that this outcome was foreseeable. To form a nation you basically have to declare it, and that opportunity was missed. I say opportunity, but we imagine how events might have gone from there also. I feel the whole circumstance was used by many sides.

        On the other hand, Spain is also slowly losing its own authority. Whether from lessening royal support, corruption in politics across the board, moving towards the left or at best uncertain governance , finances and economy, modernising society, local management getting out of hand, and so on. There is a lot of EU influence, French and German particularly, working itself into the country also. So the result of that all is something unknown, and Cataluña I think will wait for its opportunity with regard, whether it is some kind of federalisation or other. Andorra is one model I imagine that is looked to, but I don’t think Spain will release the region that far. There may also well be a strong nationalist resurgence in Spain, though strong nationalist sentiment is shared by maybe a third of the population, and maybe another third are moderate nationalists, the strong nationalists are much more determined and active than the rest.

        So overall there is a lot of uncertainty around.

    • Heath
      Oct 10, 2018 at 12:16 pm

      “I don’t know who internationally would recognise Cataluña…..”

      DC.

      • Crysangle
        Oct 10, 2018 at 1:02 pm

        Funny, I just dug up an old coin here from 1918 (a few years after the Portuguese monarchy were ousted) , which apparently was the year the estelada was designed by Catalan exiles in then republican Cuba . The influence running through events is unmistakable if you know what it looks like.

        On a more serious note was the loss of military equipment in Portugal just prior to independence vote , “enough to start a small war” . It was much later returned, unused. Not nescessarily related, but there isn’t much of a market for items like modern anti-tank missiles worth risking by soldiers.

  4. MCH
    Oct 9, 2018 at 9:48 pm

    Oh man, you have to love those state owned enterprises. Good thing those don’t exist in the the #2 economy in the world. Imagine what they could do to a bank, say perhaps in Hong Kong, Macau, or some local municipality that they happen to disagree with.

    Thankfully, there is no way something like this could happen in Europe at large. Cutting off access is just not an option in the EU, is it? Is it?

    • MC01
      Oct 11, 2018 at 4:29 am

      On the issue of Macau and Hong Kong… those are two very very peculiar microeconomies, even after ultimate control passed into the hands of Beijing.
      Both are built around a typically Asian “private-public partnership”, which is basically rent-seeking based around government-given monopolies, but with several local twists.
      On top of this Hong Kong still has a few of the ancient British-owned hong (financial group/holding) going back to the Victorian Era, such as Swire Group.

      Ordinary people in the streets, in the warehouses and in the shops love to gossip and joke about the “connections” between the local governments, the British hong and the local godfathers. People such as Paul Chan Mo-po, the present Financial Secretary of Hong Kong (roughly equivalent to the Secretary of Treasury in the US), can really make their day. The chap is basically a high level corporate accountant lent to politics (a typical situation in Hong Kong) who has been involved in so many scandals when his name is mentioned in the news people start laughing. He’s nicknamed “BMW Chang” for his tragi-comical defense during a libel trial to “Blame My Wife”.

      Honestly, with such people in charge who needs blackmailing banks?

  5. raxadian
    Oct 9, 2018 at 10:00 pm

    Looks like old habits like “Hacerse la America” have not died. Even if in this case the “America” is part of their same country.

    To clarify, spanish conquerors only went to America to become rich by any means needed.

    Take a look at Telefonica/Telefon/Movistar whatever name is going by nowadays that used their friendship with their then current Spanish president to do a lot of despicable acts.

    Meaning that yes, the spanish government corruption is nothing new.

  6. MC01
    Oct 10, 2018 at 1:30 am

    A few years back I became convinced Catalan political leaders were riding the horse named independence to cover their own shortcomings, from their enthusiastic partecipation in the Spanish real estate bubble to their ties with local banks with shady if not downright crooked lending and accounting practices.
    All the government in Madrid had to do was to keep an eye on the most enthusiastic elements to avoid possible acts of violence and the whole thing would have fizzled on its own: Spain already allows a lot of autonomy to the “comunidades”, as they are called, including legal use of the local language(s) and Catalan leaders were really promising their own voters too much for their own good.

    But as most rulers worldwide, Rajoy forgot the warning Emperor Trajan sent to Pliny the Younger: fanatics, madmen and even crooks tend to believe themselves charged with a divine mission once violence is used against them. Handling them with the utmost care is paramount to avoid a catastrophe.
    Rajoy did not heed this warning, nor did he even stop to consider his options: he desperately needed to show everybody what a strong and uncompromising leader he is. Given he had no majority in parliament and depended on the PSOE’s goodwill for his own political survival, it was a classic case of trying to compensate. ;-)

    And Rajoy managed to let the genie out of the bottle. I was in Spain just last week and in Catalunya you cannot go in a village, no matter how small, without seeing Catalan flags, murals and posters demanding “Llibertat Presos Politics!” (“Free Political Prisoners!”) and yellow ribbons to show the latter solidarity. It seems Rajoy managed to push even those suspicious of the independence movement into that camp. At least he’ll be remembered for something more than merely being a stooge for Corporate Spain. Well done.

    • Heath
      Oct 10, 2018 at 12:33 pm

      No. Rajoy had to do it, otherwise Spain is done. it drops from a second tier nation (Germany and France occupying the top table) in the EU, down the pecking order

    • Cynic
      Oct 10, 2018 at 1:55 pm

      Good points: Rajoy cemented and increased the base of Catalan nationalism and conveniently provided genuine ‘martyrs’,(imbeciles? ) but Catalan nationalists have fostered the renewal of the far Right.

      The same old stalemate. Converging idiocies.

      How dreadfully boring -but that’s Spain: boredom punctuated with violence.

  7. José
    Oct 10, 2018 at 3:25 am

    To call that pantomine a referendum is only a joke
    I do not know what kind of information do you manage but
    it seems that you are not serious and so is your opinion

    • Crysangle
      Oct 10, 2018 at 8:47 am

      In the meantime though your central bank is run by an Italian in Germany , your lawmakers are a minority based in Belgium and Strasburg, someone called “Merkel” effectively decides how much to fine you if you don’t take migrants, something which the mayor of Paris will happily advise your president about, while another of your leaders called “Juncker” is learning dance moves from the British prime minister. Makes you want Gibraltar back no ?

  8. MF
    Oct 10, 2018 at 8:36 am

    ” In other words, a death sentence, as Caixabank’s then president Isidro Faine recently admitted.”

    Anyone still want to claim we live in a market-driven economy? Oh, America is different you say? OK. What if the Texas secession movement inexplicably gained traction? Do you think their banking system — and therefore economy — would not get crushed?

    We all live in a global political economy now. Market forces are only allowed to exist where they benefit the overclass. Labor is a good example.

    • Oct 11, 2018 at 12:32 am

      No, not their banking system. Their oil terminals. But no, I don’t think it would go much differently in the US of A.

  9. safe as milk
    Oct 10, 2018 at 8:33 pm

    i guess financial warfare is to be expected from a government that jails elected representatives and sends troops to crush peaceful demonstrations. i was appalled by how the american media did it’s best to ignore the story of spain’s crackdown on catalonia. i do not know spanish or catalonian history but i know fascism when i see it.

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