Spanish Financial System: Structure, Regulation, and Central Bank Functions

The Financial System: Definition and Purpose

The purpose of the financial system is to channel savings generated by surplus economic units to the expenditure of economic units in deficit.

Key Elements of the Financial System

• Assets and Financial Liabilities: When there are no funds, entities sell shares to raise capital, and when funds are available, individuals invest their savings.
• Financial Markets: This is where financial products are placed and purchased.
• Intermediaries and Financial Institutions.

Primary and Secondary Financial Markets

• Primary Market: Companies sell financial assets directly to the initial buyer.
• Secondary Market: Used when an owner who has purchased a financial asset disposes of it, reselling it in order to raise funds (liquidity).

The Bank of Spain and the ESCB

The Bank of Spain is the state's central bank and is integrated into the European System of Central Banks (ESCB). This integration signifies that the Spanish state has transferred its monetary autonomy to the European institutions.

Functions of the Bank of Spain (Banco de España)

• Implementation of monetary policy, in accordance with the European Central Bank (ECB) and the European System of Central Banks (ESCB).
• The control and supervision of credit institutions and specialized credit institutions (SCIs).
• The organization and intervention in currency and foreign exchange markets.

Open Market Operations (OMOs)

Open Market Operations consist of buying, selling, lending, or borrowing securities or other financial instruments. The acquisition of assets serves to inject liquidity, and the transfer (sale) is a withdrawal of liquid funds from the system.

Restrictions on Bank of Spain Funding Policy

The Bank of Spain, in its policy implementation, is prohibited from directly funding Community bodies, Governments, regional or local authorities, or any other public entity.

ICO (Official Credit Institute) and Its Role

The Official Credit Institute (ICO) is a state financing agency with legal personality, its own assets, and cash credits dedicated to certain sectors. It primarily supports the most vulnerable.

• Help mitigate the effects of severe economic crises or other situations.
• Act as a tool for the implementation of specific economic policy measures.
• Operations resulting from these measures are implemented through loans.
• Providing financial advice to public and private entities in matters related to the activities of the Institute.

Structure and Regulation of Commercial Banks

Banks must be corporations with a minimum initial capital of approximately 18,030,363 Euros (the amount may vary). Their activity is limited by their statutes. The partners must not be disqualified from holding public office, and the bank must have a general meeting.

Legal Form of Savings Institutions

The legal form of savings institutions is often a foundation, allowing them to generate benefits and operate as public or private entities. Note: Restrictions may apply regarding the use of donations for investment purposes.