Lartaun de Azumendi

When the deep crisis of the first half of the 1980s was over, the banking sector had undergone a process of consolidation. After restructuring, the most stable and solvent banks took over those that had not been able to survive the depression. The most important banking groups grew stronger, but had to take even more ambitious and decisive steps to meet the challenges posed by the new European landscape.

The 1973 oil crisis, which arose due to the tensions that led to the Yom Kippur War, set off a global chain reaction that also affected Spain. The increase in commodities prices, and a steady decline in Spain’s economic cycle, led to truly difficult times for the banking sector. The upward trend that had begun in the early 1960s was immediately stopped, and worrisome warning signs began to appear, such as an increase in unemployment and a fall in the value of money.

Franco’s government pushed relentlessly to normalize the financial system after determining that most of the efforts over the last decade to open up the sector had been effective. Progressive liberalization of the system was therefore considered a path to continue following. Among other issues, the administration focused on a change in private banking in 1972.

The subsequent legal reform that took place in the 1950s and early 1960s bore their fruit in the economy and in the banking sector. In the latter, the biggest banks, especially those from Vizcaya, were stronger thanks to a liberalized panorama that enabled their growth and expansion following two complicated decades in the Franco regime.

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.

The Spanish economy was at a delicate point at the end of the 1950s. Following the civil war, Franco’s dictatorship managed to revive the economy through major intervention and the imposition of a strong autarchy that isolated Spain commercially from the western countries. The economy grew through these severe measures but indicators such as inflation began to be a concern. The time had come to change the rules of the game, at least in part.

Banco de Vizcaya, which was founded in 1901, over four decades after Banco de Bilbao, had had only two top executives up until the 1940s. Like Banco de Bilbao, its major competitor in Vizcaya, the true head of Banco de Vizcaya was its management, and not its Board Chairman.

Until the first years of the 1940s, neither Banco de Bilbao nor Banco de Vizcaya had a permanent chairman. Despite the fact that the former was founded in 1857, and the latter, in 1901, their respective boards of directors had previously been chaired by individual board members in rotating periods of one year.

Minister Benjamin’s Banking Law of 1946 further pulled in the already tight reins on the Spanish banking sector. In spite of everything, the two banks from Bilbao managed to grow and to distinguish themselves amongst their national competitors. Even before the greater growth that took place during the 1950s, Banco de Bilbao and Banco de Vizcaya had ended the 1940s in very good health.

Following the urgent measures adopted by Franco’s government to expedite the reconstruction of the economy, the Ministry of Finance redoubled its efforts to strengthen its grip over the banking sector.  On the last day of 1946, a new banking law was passed, outlining the new scenario in which institutions would be required to operate during the next decade.

As Franco’s government endeavored to rebuild the economy of country in shambles, companies started focusing on their own efforts to lay the foundations of their businesses in a new market, marked by much tighter government control and the impossibility of engaging in any sort of foreign commercial activity. As for banks, they faced the daunting task of putting back together the two realities into which the sector had been split during the war.

After the Nationalists victory, Franco’s government had to face numerous problems. Some required a quick solution to lay the foundation for reconstruction as soon as possible. One of the issues that needed to be addressed was the existence of two currencies, the one coined by the winners and the Republican currency. This situation arose as a result of the rebel faction’s decisions made throughout the war.

On April 1, 1939, the last war report issued by Franco from Burgos concluded with a statement that read: “the war is over.” A Spain in harrowing shape needed to tackle its social and economic reconstruction process, both for its citizens, for its businesses, and, of course, for a banking industry that had seen its capabilities seriously damaged by the severity of the armed conflict. Spaniards were left facing a 40-year long dictatorship.

On top of the issues that the banking industry as a whole was struggling with as a result of Spain being split in two and the constant shifting of its borders, Banco de Bilbao and Banco de Vizcaya were affected by another player due to their origin: the Basque government. The autonomy achieved during the later stages of the Republic by the Basque region would lead José Antonio Aguirre’s government to make more than a few economic decisions during the conflict.

One of the thorniest consequences for the banking industry of the outbreak of the war and the country’s division into two opposite sides was the inability to carry accurate and reliable accounting records. Already in 1936, after barely six months of conflict, banks were not able to close their accounting books.

With Spain’s banking industry divided in two, and some of the banks’ CEOs and directors going over to the enemy, it was the professionals at the savings banks and banks who made it possible for everyday life to be as normal as possible within the confines of such a harsh war. To the extent possible, executives and workers came up with ways to get by.

The political climate before the civil war was anything but peaceful. The differences between the buoyant conditions in cities and the complex socio-economic juncture in rural areas were substantial. The policies that the Ministry of Finance adopted, when not directly pointless, were mostly ineffective. All this notwithstanding, the government that emerged from the 1936 elections did not adopt a bellicose stance against the Spanish banking sector.

The political upheaval that marred and engulfed the country’s public life during the first five years of the 1930s, ended leading Spain right towards where some visionaries’ had predicted it irretrievable would: a full-blown civil war.  The succession of controversial events that plagued the first half of 1936 contributed to turn Spanish society into a tinderbox under a stifling political climate. On July 18, General Francisco Franco issued an official statement, announcing the beginning of his uprising against the Second Republic’s current legality.