European Central Banking and Spanish Credit Institutions
The European System of Central Banks (ESCB)
The ESCB comprises the European Central Bank (ECB) and the central banks of all European Union Member States. It’s important to distinguish between the central banks of the Eurosystem (using the euro) and those of states that retain their own currency.
The ECB’s primary function is to fulfill the tasks assigned by the European Union Treaty. The ESCB has two main bodies: the Governing Council and the Executive Board. There is also the General Council, specific to the ECB, composed of the ECB’s president and vice-president, and the governors of national central banks. The General Council has mainly consultative and organizational duties.
Two key principles govern the ESCB:
- Financial autonomy: The ECB and national central banks cannot directly finance EU bodies, governments, or other public entities.
- Functional autonomy: The ECB, national central banks, and their governing bodies cannot seek or take instructions from EU institutions, governments, or other bodies.
The Bank of Spain
The Bank of Spain, integrated into the ESCB, is Spain’s central bank. This integration means Spain has transferred its monetary autonomy to European institutions. The Bank of Spain influences monetary policy through its participation in the ESCB’s Governing Council and executes policy alongside other Eurozone central banks, following instructions from the ESCB’s Executive Board.
Monetary Policy Operations and Payment System Control
The following tools are used to implement monetary policy:
- Credit to supervised institutions: Increasing credit lines to supervised banks increases money available for loans and public spending. Reducing credit lines decreases liquidity in the financial system.
- Open market operations: Buying or lending securities injects liquidity, while selling or borrowing securities reduces liquidity.
- Minimum reserve ratio: Credit institutions must hold a percentage (currently 2%) of their liabilities in accounts at national central banks. Increasing this ratio reduces liquidity, while decreasing it increases lending capacity.
- Regulation of interbank and foreign exchange markets: The Bank of Spain regulates these markets and manages related clearing and settlement systems.
- External operations: The Bank of Spain can buy and sell currencies and precious metals, and conduct banking transactions with foreign entities and international organizations, within ESCB policy.
Without compromising the principle of autonomy, the Spanish government can task the Bank of Spain with specific responsibilities.
Official Credit Institutions: ICO
The Institute for Official Credit (ICO) is a public company and credit institution acting as the state’s financial agency. It has legal status, own assets, and management autonomy to achieve its objectives, which include:
- Mitigating the effects of economic crises or disasters.
- Implementing economic policy measures established by the Council of Ministers.
- Providing medium and long-term loans.
- Managing funds, grants, loans, and guarantees.
- Taking stakes in financial firms.
- Providing financial advice.
The ICO is funded through its assets, government contributions, and by raising funds in domestic and foreign markets.
Credit Institutions: Banks, Savings Banks, and Cooperatives
Banks
Banks must be corporations with a minimum initial capital of €18,030,363, fully paid in cash. Shareholders with significant stakes (5% or more) must be qualified, meaning they have a clean financial and legal record. Banks operate under the governance of a general meeting of shareholders.
Savings Banks
Savings Banks operate like banks but are non-profit foundations. They have an endowment fund instead of social capital, also with a minimum of €18,030,363. To finance growth, they use strategies like self-financing, issuing subordinated debentures, voting shares, and preferred stock. They can also merge or absorb other credit institutions. A Board of Directors manages the entity and its welfare fund, while a Monitoring Committee oversees the Board’s actions.
Credit Unions
Credit Unions are cooperative credit institutions, subject to general cooperative rules and regulations of their respective autonomous communities.