Abstract
This chapter provides an overview of the origins of the Spanish banking system prior to the twentieth century. It shows the role of the state in the development of the Spanish banking system, and how financial mismanagement contributed to the decline of the country prior to the twentieth century. It describes the ‘bank bargains’ that took place during that era, which ultimately led to the development of a fragile banking system and recurrent banking crises.
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Notes
- 1.
There are references to a banking transaction in the famous Poema del Cid written around 1150.
- 2.
The bank’s note issue averaged close to 3% and had never exceeded 14% of its capital. The Bank had also made important mistakes: It invested heavily in a project to build a canal from Madrid to Sevilla that failed, it purchased French public debt bonds that turned out to be an almost total loss; and the Company of the Philippines ended up heavily indebted with the bank as well (Tortella and García Ruiz 2013, pp. 17–21).
- 3.
Most observers agree that the disentailment process that run throughout the eighteenth (1830s–1850s) and nineteenth centuries had limited success because the aristocrats were able to acquire the bulk of the land (they were also largely unprogressive and absentee), and also because it slowed down economic growth by diverting savings away from industry and infrastructure (Kindleberger 1984, p. 147).
- 4.
The Rothschilds were also able to obtain, through bribes to the Queen and the finance minister, the Almadén contract to exploit mercury resources which they had pursued for years and turned out to be very profitable (Tortella and García Ruiz 2013, p. 31).
- 5.
The new bank was opposed by the Spanish Bank of Saint Ferdinand, which even refused to accept its money, and they had a legendary confrontation. But the new bank forced its more traditional competitor to amp its game intensifying its operations with the private sector, not charging fees for deposits, facilitated the concessions of loans, expanded its note issue (Tortella and García Ruiz 2013, p. 38).
- 6.
The contract was restored in November of 1847 after the Salamanca government fell, and was replaced by a new cabinet.
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Royo, S. (2020). The Origins of the Spanish Banking System. In: Why Banks Fail. Palgrave Macmillan, New York. https://doi.org/10.1057/978-1-137-53228-2_2
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DOI: https://doi.org/10.1057/978-1-137-53228-2_2
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