Abstract
This chapter examines the evolution of the Spanish banking system in the twentieth century and analyzes the causes of the mid-1970s and early 1980s banking crisis. It shows how the banking sector was transformed and modernized, growing from an underdeveloped structure into a comparatively modern sector. However, successive governments continued establishing institutional and regulatory frameworks that favored both the government and other privileged actors’ access to finance at the expense of an environment conductive to a stable banking system, which ultimately led to a systemic baking crisis in the mid-1970s.
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Notes
- 1.
Yet again, 13 of these banks were liquidated by 1914.
- 2.
It first acted as ‘lender of last resort’ in 1914 when it rescued the Hispanic American Bank, which had been a victim of the Mexican Revolution. However, until the banking crisis of 1931, its interventions were selective, for instance it did not rescue the Bank of Barcelona in 1920, and they were largely driven by orders from the government to intervene.
- 3.
The Bank of Spain sent again a similar ‘recommendation’ in 1950 that included the ‘threat’ of a reduction of the Bank of Spain’s rediscount limits to those banks that failed to invest 45% of their deposits in public funds.
- 4.
Luís Saenz de Ibarra, deputy governor of the Bank of Spain between 1947 and 1956, was instrumental in the negotiation and implementation of these agreements, and he played a key role as intermediary between the banks and the government/regulators (Tortella and García Ruiz 2013, pp. 124–25).
- 5.
According to a study from the School of Industrial Organization (EOI), the five largest banks (Banesto, Bilbao, Central, Hispano and Vizcaya) held 45% of the capital; 65% of demand deposits; 50% of industrial participations; and 72% of the branches in Madrid, and 68% in Barcelona (Tortella and García Ruiz 2013, p. 129).
- 6.
Despite the Navarro Rubio Law’s provisions that forced banks to choose between becoming commercial banks or industrial banks had a limited effect: as late as 1966–1967, the six largest banks still exerted influence over 1000 companies through their presence in these companies’ boards of directors; and the five largest banking groups (Banesto, Bilbao-Vizcaya, Central, Hispano-Urquijo, and Vizcaya) jointly controlled 68.7% of capital, 78.9% of deposits, and 80.9% of the branches (Martín-Aceña 2012, pp. 132–38).
- 7.
By 1974, savings banks, led by La Caixa, Caja Madrid, Caja de Barcelona and Caja de Zaragoza in that order, controlled approximately a third of the deposits. The 1977 decree eliminated the restrictions that did not allow savings bank to perform the same operations as banks, and in exchange it eliminated the privileges that savings banks enjoyed in the mortgage market. This decree in effect leveled the playing field between them.
- 8.
Palomeras opposed that intervention and opted for the bankruptcy of the bank. He was the first banker detained and judged in Spain. He faced several crimes, including the falsification of the bank accounts, but was absolved by the Pamplona Audience and by the Supreme Court.
- 9.
The bank invested 195 million pesetas in the stock of the Montigalá-Batlloria’s real estate development project. The project located in Badalona and Santa Coloma de Gramenet planned to build 13,000 apartments to host 50,000 people, following the model of the Finish city, Tapiola. The opposition from the municipalities and the collapse of the bank made the project fail. Another questionable initiative promoted by Pujol was the purchase of 13 million in Infraestructuras Sociedad Anónima’s stock. This company held 58% of the firm Túneles y Autopistas de Barcelona, which won the official concession to build the tunnels that would go through the Collserola mountain to improve access to Barcelona. Different problems led to the stagnation of the project. Pujol also promoted the purchase of stock from the Sociedad Anónima Grupo Alimenticio in 1974, for 100 million pesetas; and another 100 million from the Company Cervezas Ole Barcelona Sociedad Anónima (CERBASA), which commercialized Moritz’s beer. This firm closed even before the bank, amidst workers’ protests and lockouts. See: “Banca Catalana repartió 516 millones en dividendos entre 1974 y 1976 año en que ya tenía un déficit de mil milllones,” El País, August 26, 1986.
- 10.
Banesto was also involved in other disastrous errors those years: the Bank Catalan for Development (Banco Catalán de Desarrollo, Cadesbank), which had to be restructured by the FGD; the Bank of Madrid (Banco de Madrid, Bandri) which had to be cleaned up by Banesto itself; and the Garriga Nogés Bank (Banco Garriga Nogués, BGN), which had been involved in questionable investment and in which clients connected with the bank chairman, Javier de la Rosa, concentrated 55.4% of the credits granted. No wonder why Banesto’s chairman Pablo Garnica was so reluctant to embark in other mergers (Tortella and García Ruiz 2013, pp. 154–55).
- 11.
González’s appointment as chairman of Argentaria (and later of BBVA) was clouded in controversy, because he did not have a banking background and was a close personal friend of the Prime Minister, José María Aznar, since they went to school together.
- 12.
The growing demand for credit, boosted by record-low interest rates, led to a sharp increase in the country’s external financing needs: in 1998, Spain did not need outside funding and was able to meet credit demand with domestic bank deposits alone, yet by 2007 the external financial needs exceeded 9% of GDP (Malo de Molina 2012, p. 205; see Tortella and García Ruiz 2013, p. 167).
- 13.
This unique feature of Spanish banking has been explained by several factors: low population density; specialization in retail banking ; limited financial education (people still prefer going to a bank office or using an ATM, than using the Internet); and low penetration of the broadband in telecommunications (Tortella and García Ruiz 2013, p. 174).
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Royo, S. (2020). Spanish Banking in the Twentieth Century. In: Why Banks Fail. Palgrave Macmillan, New York. https://doi.org/10.1057/978-1-137-53228-2_3
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DOI: https://doi.org/10.1057/978-1-137-53228-2_3
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