banks

   The prolonged economic crisis that began in 1975 had a disastrous effect on the smaller private banks, many of which had to be rescued by the Bank of Spain (Banco de España) and absorbed by the bigger, healthier banks. Spain's entry into the EC in 1986 brought further dramatic change as competition from foreign banks threatened to take market share from the Spanish banks. A period of liberalization and streamlining of regulations by the monetary authorities was accompanied by mergers and new marketing ploys to attract depositors. The more than a hundred private banks of the early 1970s were reduced to just over thirty by the mid-1990s. The biggest mergers have been those between Banco de Bilbao and Banco de Vizcaya; Banco Central and Banco Hispanoamericano; the state-owned Banco Exterior with other financial institutions in the public sector (now known as Banco Argentaria); and the acquisition of the troubled Banesto by Banco de Santander. These now form the "big four". There is still a considerable number of small banks in Spain although some are in fact owned by the large banking groups. The move towards concentration is resulting in branch closures, inevitably, since Spain has considerably more bank branches than most countries in the EU. On the other hand, Spanish branches employ fewer staff on average than other countries, so productivity in terms of clients per employee is high. Because bank and building society deposits still account for over 50 percent of household savings in Spain, retail banking has been the mainstay of Spanish banks, but there is increasing interest among Spaniards in other forms of savings such as shares, pension funds, bonds and insurance policies, and the banks have responded to this by developing products such as unit trusts and private pension schemes. The recession of the early 1990s had a significant impact on Spanish banks, lowering margins and creating a need to increase provision for bad loans. On the other hand, the Bank of Spain's reduction in the legal reserve requirements has released some funds, and while profitability has suffered it remains among the highest in the EU. The banking system was nevertheless rocked by the near-collapse of Banesto in 1993 as a result of huge sums having been illegally syphoned off by Mario Conde (see also Banco de Santander). The year 1995–6 saw a major improvement in bank balance sheets with a reduction in the provision for bad loans and in overheads together with a modest increase in earnings from financial operations. Net interest margins (the difference between interest paid and interest charged), however, have been squeezed by the increased competitiveness, but the ratio of capital and reserves to total assets is high by European standards and profits have recovered sharply. Spanish banks have also recently been building up their shareholdings in strategic sectors such as electricity and telecommunications.

   See also: economy

   Further reading

   - Salmon, K. (1995) The Modern Spanish Economy, 2nd edn, London: Pinter (a very accessible account of all the main aspects of the Spanish economy).

   C. A. LONGHURST