The Structure of the Spanish Financial System: Banking and Non-Banking Intermediaries

Spanish Financial Intermediaries: Banking vs. Non-Banking

Financial intermediaries in Spain are divided into two main categories: banking and non-banking.

• Banking Intermediaries: Their liabilities are accepted as a means of payment (i.e., money).
• Non-Banking Intermediaries: They issue financial assets that are not considered narrow money.

Banking Financial Intermediaries

These are institutions whose financial assets are considered a form of payment.

Bank of Spain (Banco de España)

As the central bank, the Bank of Spain has several key functions:

• It does not work directly with individuals.
• It provides funding to other banks and the public sector by purchasing public debt.
• It issues currency, as authorized by the European Central Bank (ECB).
• It executes monetary policies for the Eurozone as established by the ECB.
• It supervises the entire financial system, ensuring its solvency and liquidity.
• It issues public debt and manages its purchase to finance the public sector.
• It provides loans to commercial banks.

Commercial Banks

Private commercial banks capture savings from the public and provide financing to individuals, businesses, and the public sector. Their profits benefit the owners (shareholders). They must hold a percentage of their deposits as reserves to ensure solvency and meet daily financial needs.

Their profits are allocated to:

• Reserves: Including legal, statutory, and voluntary reserves.
• Dividends: A share of the profit distributed to shareholders.
• Retained Earnings: Profits that are not distributed and are reinvested in the company.

Savings Banks (Cajas de Ahorros)

Savings banks also provide funding to economic agents who require it. The main difference from commercial banks is that they do not have shareholders; their profits are allocated to social projects. Originally, savings banks were created to capture savings and provide financing to small customers, but today they operate very similarly to large commercial banks.

Credit Unions

These are cooperative institutions that typically require a minimum capital to be established. They are unique in that they only provide financing to their own cooperative members.

Non-Banking Financial Intermediaries

These institutions do not issue liabilities that are considered money.

Official Credit Institute (ICO)

The Instituto de Crédito Oficial (ICO) is a public body under the Ministry of Economy and Finance. It provides credit primarily to small and medium-sized enterprises (SMEs).

Leasing Companies

Leasing companies provide financing in kind. They allow customers to use an asset (like a computer or property) in exchange for a rental fee. The agreement often includes an option to purchase the asset at the end of the term for a residual value, or the asset can be returned. Leasing can offer significant tax advantages.

Factoring Companies

Factoring companies purchase the accounts receivable (debt) of another company at a discount, in exchange for a commission. In doing so, they assume the risk of non-payment or bad debts.