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Bank of Spain Governor De Cos cautions against risks in extending bank windfall tax

Pablo Hernandez de Cos has suggested that the Spanish banking tax should be revised as its current design has significant room for improvement

Bank of Spain Governor, Pablo Hernandez de Cos, has stressed the importance of considering the preservation of financial stability and correct transmission of monetary policy while discussing a potential extension of the current Spanish windfall tax on banks.

Recently, a coalition deal between centre-left parties was agreed upon to extend the windfall tax on banks and large energy companies. However, the coalition is yet to receive approval from other parties in Parliament.

The Socialists and their leftist party Sumar have not provided any specific details on what exactly would be taxed, but they plan to review and adjust the levies on banks and energy companies beyond their current application period.

During a financial event, Pablo Hernandez de Cos said, “It is very important to take into account, whether you want to introduce such a tax or to keep it on a more permanent basis, how it affects financial stability and the transmission of monetary policy itself.”

Pablo Hernandez de Cos believes that it is more beneficial to retain the capital of the banks and strengthen the resilience of the banking sector in times of high uncertainty.

“We are aware that the profitability of the banking sector is high but we think that there is an important part of this increase in profitability that is not going to be permanent and there are also many economic risks at a global level and in the Spanish economy,” he said.

Pablo Hernandez de Cos has suggested that the Spanish banking tax should be revised as its current design has significant room for improvement.

Caixabank CEO Gonzalo Gortazar also expressed his view that any windfall tax on Spanish banks should be levied on profits instead of revenues, in order to avoid hitting capital.

It is worth noting that taxing revenues instead of profits could result in even a bank with potential losses being taxed, which could ultimately affect its capital.

The Spanish government implemented a 4.8% levy on banks’ net interest income and net commissions over 800 million euros ($880 million) for a period of two years, starting from December 2022.

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