The high levels of operating efficiency, profits, and market values for banks in the years before the financial crisis raise reasonable doubts about the accuracy of the assessments of the efficiency of banking intermediation. We examine the productivity growth in Spanish banks in the pre-crisis period by separating out the contributions to productivity growth from business practices and from industry-wide technological progress. We find that more than two thirds of the estimated productivity growth in the years 2000–2007 is attributed to banks’ practices, such as the expansion of credit in the housing market, the high recourse to securitization and short-term finance, the reduction in liquidity holdings, and the leveraging process of banks’ balance sheets, that the literature claims are the ultimate causes of the crisis. We estimate that the remaining cumulative annual growth rate is 2.8% for the industry’s technical progress, which is similar to that in the period of 1992–2000.

Ownership, governance, and institutional diversity among banks are a subject of public and regulatory concern. This paper addresses this issue by using a case study of Spain, where the retail banking market was split evenly between shareholder and stakeholder banks before the crisis. We examine how institutional diversity mattered in the accumulation of risk in the pre-crisis years, in the severity of losses caused by the crisis, and in the resilience to recover from the losses. The method of analysis consists in linking the risk position of the banks in the pre-crisis period and the losses arising during the crisis to the decisions of banks to migrate from business models based on deposit financing to models based on market-debt financing. We find that cajas migrated to more vulnerable business models following the strategy of the shareholder banks, but the losses in the crisis were much higher in the former than in the latter. The paper interprets this result as evidence that what matters the most about the ownership of banks is their resilience in bad times.