Brief history of BBVA (XX): Changes in the banking system
Before long, the steps taken in the 1950s to abandon the autarchy that had trapped the Spanish economy began to produce results, prompting technocratic ministers to propose additional measures that would put Spain on the path to further liberalization. The route taken by the dictator would still require time, but during the 1960s, the economy was experiencing moments of positive change. The new legislation would encourage private banks to create specific industrial banks.
Some of the initial consequences of the Stabilization Plan were not positive, however. Quite to the contrary, income fell and unemployment increased immediately after the major adjustments that impacted Spaniards. Nevertheless, despite GD contracting 4.4%, currency reserves quickly rose and exports skyrocketed. Higher income from exports and tourism enabled Spain’s balance of payments to have a nearly $400 million surplus in 1960 dollars. In addition, the budget ended with a positive dividend of 6.5 billion. Thus, as early as 1961 the general feeling that the measures passed in 1959 were correct, was a fact.
The recessive impact of the Stabilization Plan disappeared in two years and Spain saw strong growth throughout the next decade. The 13.2% GDP growth in 1961 demonstrated this striking change in the trend, although with somewhat more modest figures in subsequent years. All of the country’s economic sectors were growing in the 1960s, but industry really stood out. Chemistry, mechanics, and metalworking saw the greatest growth, with the automotive industry also deserving special mention, and SEAT - created by the National Institute for Industry in 1950 - leading the way.
The considerable exodus from the countryside to the cities, together with the first industrialization in the 1950s, which served to expand the internal market, were also providential for sustaining economic growth from that point until the oil crisis in 1973.
Liberalization not only allowed companies to increase their incomes with exports; they could also import equipment and technology from more developed neighboring countries. Logically, the value of these imports was reflected in an immediate and very necessary increase in the productivity of Spain’s industry.
(First book of minutes of the Banco Industrial de Bilbao in 1964 - BBVA historic archive
The Credit and Banking Regulation Law and Banks in 1962
According to the forecasts by government officials in charge of the economy, the success of the Stabilization Plan would be followed by a series of highly significant steps, known as Development Plans. They were designed to continue to make progress in the opening and modernizing change that had begun a few years earlier. The planning process required significant financing and in this, among other matters, the approval of the Credit and Banking Regulation Law (LOCB) was approved on April 14, 1962.
The LOCB of 1962 indicated from the beginning of its articles that the monetary and credit authority was the responsibility of the government through the Ministry of Finance and that they would be the ones to indicate to the Bank of Spain and Official Credit Institutions the guidelines to be followed at all times in terms of monetary and credit policy.
- The Bank of Spain
The Bank of Spain, which still enjoyed the status of corporation (anonymous company), was nationalized when the government purchased its shares. It was decided, at least on paper, that the Bank of Spain was an autonomous organization for technical matters and a governor would be designated by decree as the visible head of the institution.
It continued to be the exclusive issuing bank, responsible for establishing norms for operating in the open market. the discount rate for private banks, the pledging by the banks of public funds, fixing variable ceilings for legal deposits in private banks, and other necessary control tools. In the same manner, the Bank of Spain was given the task of inspection of private banks, according to the norms dictated by the finance ministry.
- Lending institutions
The Institute for short and medium-term credit was created, as a Finance Ministry agency that managed relations between the government and the Official Credit Institutions. On the other hand,the Official Credit Institutions were formed, as a result of the nationalizations of the Banco Hipotecaria de España, the Banco de Crédito Industrial and the Banco de Crédito Local.
- Savings Banks and Rural Banks
The savings banks and rural banks were also affected by the LOCB. After three decades of leading these institutions in a private manner, the State would make a public institution out of the Credit Institute for Savings Banks, giving it the capacity to direct, coordinate and inspect the savings institutions and to act as an intermediary between them and the Bank of Spain and the Institute for Medium and Long Term Credit. However, the principal change was to demand that the savings banks, by law and through very concrete dispositions, increase credit to the agricultural industry, to artisans and to small commercial companies.
- Private banking
There was an attempt to break, although not abruptly, the status of the mixed banks that existed in the Spanish market, by specialization of the institutions, taking advantage of the fact that they had an important industrial orientation. Thus, the legal statute of the industrial and business banks was promulgated, in order to assign them the primary function of fomenting new industrial companies. revitalizing private initiative and becoming an important actor in long-term financing. Based on this new legislation, the banks created industrial institutions and had a reasonable amount of time to disinvest the industrial securities they had in their portfolios, with significant tax advantages.
In the spring of 1964, the Banco de Bilbao created the Banco Industrial de Bilbao. The same year, the Banco de Vizcaya presented its own industrial banking institution, the Banco de Financiación Industrial, a refounding of the Banco Hispano Suizo, which in turn had arisen in 1950 from its predecessor, the Banco Hispano Suizo para Empresas Eléctricas, created in 1920.
Headquarters of the Banco de Financiación Industrial (INDUBAN).
On the other hand, some legal restrictions on commercial banking were strengthened, although afterwards their application was not so demanding, something that could be foreseen in the letter of the law. These conditions referred to the adaptation of the banks’ portfolios to the structure and the percentage of public funds that were established; to limits regarding the rediscount, pledging and reserves in the central bank; to the determination of the liquidity ratio; and the limitation on future purchases by the banks, with customers’ funds, of shares or participations in companies that were already in operation.
The path was cleared for the creation of new banking institutions, although they were required to have a minimum starting capital, in function of the area in which they were going to operate.
The creation of new branch offices and agencies by the banks was permitted, according to the discretional criteria of the Finance Ministry. In spite of the supposed restrictions, this new possibility allowed Spanish private banks to be abundantly represented throughout the national territory. This growth was perhaps a bit excessive, and their marked eagerness to compete would make many banks incapable of yielding a profit from certain branch offices, for many years.
FInally, the LOCB contemplates the legal possibility of the entry of foreign banks, to which the doors had been closed since the passage of the Bank Ordering Law of 1927. For that reason, the Finance Ministry was made the regulator of this possibility and in all cases, under the principle of reciprocity with the country of origin of the foreign bank. The reality, however, was quite different and foreign banks could hardly establish themselves in Spain because the framework of the law that referred to this topic was not developed. It was not until 1978 that banks from outside our country could begin to effectively compete with private Spanish banks.