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Banks should improve governance to overcome malpractice: ECB's de Cos

Kitco News

MADRID (Reuters) - Banks should restore their customer confidence “as soon as possible” to overcome damage to their reputations associated with financial malpractice, European Central Bank policymaker Pablo Hernandez de Cos said on Thursday.

De Cos, who also heads the Bank of Spain, said the relevance of misconduct costs “became painfully clear” in the aftermath of the global financial crisis.

“If we also include the reputational costs associated with these forms of malpractice, the actual damage to the banking sector goes far beyond the standard estimates presented,” De Cos said.

De Cos did not cite any particular malpractice, but an alleged spying case linked to BBVA (BBVA.MC), Spain’s second-biggest bank, has roiled Spain’s corporate sector in recent months.

In July, the High Court placed BBVA under formal investigation as part of a case dating back more than 15 years.

News websites El Confidencial and reported last year that BBVA had hired Grupo Cenyt, led by Jose Manuel Villarejo, to investigate officials of construction company Sacyr (SCYR.MC) to halt its 2004 takeover bid for BBVA.

BBVA said it has not identified any damage to its banking business so far and no member of its current board is under investigation.

De Cos also said banks needed to step up efforts to adapt their business models towards profitability, including exploring “cost reductions and consolidation”.

He also noted that a prolonged low-interest-rate environment could encourage excessive risk-taking by some financial actors.

He added that asset valuations appeared stretched in several advanced economies across sectors such as equity, high-yield and real estate markets.

(This story corrects sixth paragraph to `last year’ from `earlier this month’)

Reporting by Clara-Laeila Laudette and Jesus Aguado; editing by Andrei Khalip, Larry King

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