With the creation of the European Banking Union, the competitiveness of Spanish banks must be assessed within the context of the new integrated European system. While today Spanish banks both outperform and underperform their peers in certain areas, convergence with the leading comparable European banking systems is expected.

Within the new European banking sector landscape, one of the main challenges, for banks and supervisory authorities alike, is to manage the co-existence of a large number of entities with very different business models. The ability of these entities to generate earnings will depend on their ability to leverage their strengths in an environment of protracted reduced economic growth and low interest rates. In Spain, where the banking model is strongly biased towards financial intermediation, banks today are outperforming many of their European peers in terms of income generation. However, low interest rates, the absence of growth in lending volumes, and the end of the sovereign carry trade should put downward pressure on profit margins going forward. Furthermore, the higher cost of risk associated with the Spanish banking model serves as a counterpart to the higher income margins generated by the Spanish financial system. Lastly, on a comparative basis, at year-end 2014, Spanish banks were somewhat less solvent than their European peers, but potential changes to the methodology for the measurement of financial strength may leave Spain in a more favourable position.