Spanish Financial System: Banking Regulations and Functions

Exchange Rate Policy

The exchange rate is the relationship between two currencies, measured by the amount of euros required to purchase another currency. The European Central Bank (ECB) sets the applicable exchange rate policy, which is implemented in Spain.

Treasury and Public Debt

The Bank of Spain (BE) acts as the state bank for autonomous communities regarding treasury bills in euros or foreign currency. It manages actions taken by the financial services of the public debt.

Currency and Payment Systems

The Bank of Spain is the only financial institution authorized to issue euro banknotes and put them into circulation within the Spanish state. It determines the amount of currency in circulation and decides on its characteristics, renewal, cancellation, or the release of metallic currency. The Royal Mint (Fábrica Nacional de Moneda y Timbre) is the agency responsible for the manufacture of coins and notes in Spain.

Supervision and Control

The Bank of Spain performs the following functions:

• A) Granting approval for the registration of companies wishing to operate as credit institutions.
• B) Establishing accounting, financial, and operational standards for financial institutions.
• C) Exercising control and inspection over all credit institutions.
• D) Opening sanction files on financial institutions that have committed irregularities.
• E) Intervening in entities experiencing management difficulties.

Private Banking

The principal activity of banks is to collect money from savings, companies, and individuals, providing interest as a counterpart. With these captured resources, banks invest in loans, charging interest and requiring collateral to mitigate the risk of non-payment. The interest received by the bank must be higher than the interest paid to customers to meet savings obligations. Private banking institutions are created for profit and operate as public limited companies (S.A.).

Savings Banks

Savings banks are non-profit financial institutions of a private, charitable, and social nature, which dictates the destination of their surpluses. Their operations and procedures are similar to private banking. These entities have undergone a process of concentration, with the most notable examples being La Caixa and Caja Madrid. They are organized through the Spanish Confederation of Savings Banks.