a new banking scare is unfolding in the shadows. The collapses of Silicon Valley Bank and Signature Bank in the United States, the failure of Credit Suisse in Switzerland, and the slide of Deutsche Bank share prices sent European financial markets into a tailspin last week. It recalls a crisis from fifteen years ago. But today the situation looks very different. Bank deposits in the archipelago are at an all-time high. Data from the Bank of Spain show that households, businesses, and public institutions in the Islands held a record 40,977 million euros in financial institutions at the end of last year. That is a striking figure. By contrast, the Canary Islands carry a much lighter debt load compared with their 2008 peak. Back then loans totaled more than 55,000 million euros; by the end of 2022 the figure stood at 38,384 million, almost 20,000 million lower.
So what changed in the intervening years? On one hand, the 2008 crisis forced a serious deleveraging in the Archipelago’s key sectors. A deep economic slowdown and tighter bank lending reduced the Islands’ overall debt levels. On the other hand, savings rose in the following years. The reason is simple: risk aversion among residents grew, and people chose to keep more cash on hand during tough times. The pandemic reinforced this habit, as restrictions kept people from spending the leisure time they’re used to.
40
billion in savings
Money deposited with local banks by the archipelago’s principal sectors totaled 40,977 million euros at the end of last year. That figure marks a historic high.
38
billion in credit
The Canary Islands’ debt level is significantly lower than in 2008, with loans totaling 38,384 million euros at the close of 2022.
The prospect of higher deposit returns, which has not yet materialized in recent months, may have strengthened the savings habit. The rise in interest rates, launched last year by the European Central Bank as a tool to curb inflation, should have boosted deposit yields. Yet major banks did not immediately raise rates, leaving savers unable to fully offset the erosion of purchasing power caused by the inflation surge.
According to the Consumer Price Index (CPI), inflation began its climb in April 2021 and continued through February this year, according to the National Institute of Statistics. Prices rose by 11.9 percent over the year. What does this mean for Canary Islanders? It means real spending power declined even as deposits grew. If inflation is stripped out, the real value of the 40,977 million is effectively reduced by about 4,877 million euros, illustrating how purchasing power eroded despite higher nominal balances.
The specter of a fresh crisis remains, and fear could push households to save even more. Yet such volatility raises questions about the European Central Bank’s ability to maintain its strategy of ongoing rate hikes to tame inflation. Persisting with this plan could threaten financial stability, but stopping too soon risks delaying the inflation target of 2 percent. In its first meeting amid financial turmoil, the ECB raised rates by a half percentage point to 3.5 percent, a move its president, Christine Lagarde, hinted might not need to be repeated in the near term.
‘rotates’ to sustain consumption
Households increasingly rely on revolving credit to keep spending steady in the face of a stubborn inflation spiral. The balance of loans tied to this mechanism rose by 1.4 billion euros across Spain last year, reaching its highest level since 2019. Data from the Central Bank of Spain show Spaniards carry a total of 11.465 billion euros in such cards, often used for microloans to bridge smaller gaps in monthly budgets. While this helps smooth consumption, the biggest burden remains housing debt. By the end of 2022, national mortgage debt hit 65.22 billion euros, the highest level since at least 2013. The surge followed the housing boom spurred by very low interest rates that dominated the market until last summer.
In short, the Canary Islands and broader Spain are navigating a period where savings act as a shield against uncertain markets, while debt remains a key pressure point for families, particularly in the housing sector. The path forward will likely hinge on a careful balance of encouraging prudent savings without stifling consumption and investment. The recent shifts in ECB policy, inflation dynamics, and bank lending standards will continue to shape this landscape in the months ahead.