The Bank of Spain startled the financial industry with a report released last Tuesday. It highlighted a modest uptick in the deposit rate and drew attention to a shift in the sector’s concentration, not merely driven by liquidity but by how much of the market is controlled by the biggest players. Alejandra Kindelán, head of the employers’ association AEB, quickly pushed back the next day, saying, “There is too much competition in Spain.” The reality is that banking concentration rose from low to medium for the first time since 2018, but it remains far from being high or alarming. Since the euro’s creation in 1999, Spain has seen ongoing competition within the EU’s framework for member states with varying market structures.
The European Central Bank (ECB) released its full annual statistics on banking concentration across EU countries on Thursday. In Spain, competition stayed moderate but grew in influence, indicated by a traffic-light color cue of yellow. As a general rule, the ECB uses the Herfindahl-Hirschman Index to gauge concentration: a score below 1,000 signals low concentration, 1,000 to 1,800 indicates medium concentration, and above 1,800 signals high concentration. Spain’s index rose from 1,271 last year to 1,327.
These figures come from the Herfindahl and Hirschman indices, metrics used by major antitrust authorities to study market structure and to evaluate mergers. They are calculated by squaring each firm’s market share and summing the results, which weights larger players more heavily. A maximum value of 10,000 would imply a monopoly.
increase to say
In 1999, the first year the central bank provided data, Spain’s financial sector stood at 427 on the index and barely rose to 459 by 2007, just before the Great Financial Crisis. The expansion of mergers and absorptions through the crisis and its aftermath pushed the index up substantially, reaching 1,327 by the end of 2022. That marked the fourth-largest jump in concentration within the EU since 1999, with only Cyprus, Greece, and Latvia posting larger increases. Eight countries saw declines during the same period, including Estonia, Belgium, Malta, and Denmark.
Thanks to the relatively low threshold at the start, Spain sits mid-table in the EU for concentration. It ranks 12th, with seven other nations showing red flags: Cyprus (2,670), Finland (2,340), Greece (2,244), Estonia (2,244), the Netherlands (2,194), Lithuania (1,975), and Latvia (1,941). Yet there are countries with markedly lower concentration than Spain, such as Luxembourg (316), Germany (326), Austria (424), France (606), and Italy (760).
Another ECB indicator is the market share held by the five largest banks, which also reflects overall concentration. That share rose from 40.3% in 1999 to 69.59% last year, marking the second-largest gain in the EU behind Cyprus. In absolute terms, Spain ranked 14th. Greece, Cyprus, and Estonia show much higher top-five shares, while Luxembourg, Germany, and Austria sit far lower, with France and Italy in between.
market power
This metric is the one the Bank of Spain uses to gauge how concentration may affect lending behavior, including changes to deposit rates relative to historical norms. The report notes that spreads in Euribor translate less into higher deposit rates for borrowers. It also finds that greater market concentration tends to coincide with a slower pass-through from benchmark rates to deposits, though the relationship is not as strong as in markets with tighter liquidity.
Thus, the document shows that rate increases in Spain were smaller than might be expected in countries where a few banks hold dominant shares. In contrast, the deviation from expectations was less pronounced in nations with a more dispersed banking landscape, such as Germany, Austria, and France. There are also cases where parent groups in Belgium, Finland, and the Netherlands show high shares and correspondingly higher ratios, suggesting a nuanced, varied picture across Europe.
Despite these findings, Kindelán rejected any link between even modest deposit-rate gains and a lack of competition in Spanish banks. “Using scientific indices to measure competition, like the Herfindahl index, there remains ample room before any concentration anxiety would arise. There is no alarming level of concentration in the sector, and the market supports a broad set of players—from large to small and medium-sized institutions. Local competition is especially notable,” economists noted.