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THE STRUCTURE OF THE SPANISH FINANCIAL SYSTEM

VIEWS: 9 PAGES: 16

									      BANCO DE ESPAÑA



  THE STRUCTURE OF THE SPANISH
        FINANCIAL SYSTEM

                     José Luis Malo de Molina
                  Banco de España. Director General



ICO’s International Executive Training Programme in Development Banking
                           ICO. 31 March 2003
THE TRANSFORMATION OF THE SPANISH FINANCIAL
                 SYSTEM




       In the early 80s the Spanish financial system was rigid, underdeveloped,
        closed and heavily intervened. But it has since changed drastically

       Two main (interlinked) driving factors:

             Changes in the macroeconomic environment

             Changes in financial regulation




    Banco de España - Servicio de Estudios                                         1
CHANGES IN THE MACROECONOMIC ENVIRONMENT



      High inflation, increasing fiscal deficit and interest rate volatility fostered
       financial innovation

      At the same time fostered stabilisation policies:

           Decisive anti-inflationary orientation of monetary policy, which
            gradually gained credibility
           Fiscal consolidation plan, which received further impulse from the
            run up to EMU
           Spain joined EEC in 1986 and the Peseta entered the ERM in 1989

      As a positive result of those policies, Spain successfully completed its
       nominal convergence process by being included among the first group of
       countries forming the EMU in 1999



   Banco de España - Servicio de Estudios                                                2
    CHANGES IN FINANCIAL REGULATION

   1980s
       Prudential supervision framework completed: Banco de España
        (credit institutions) newly created CNMV (securities) and DGS
        (insurances)
       Bank rates and charges and commissions in securities markets fully
        liberalised
       Capital movements partially liberalised

       Book-entry public debt market comes into operation

   1990s
       Second Banking Directive transposed (freedom to establish and
        provide banking services)
       Compulsory investment requirements on banks lifted and reserve
        requirement markedly reduced
       Capital movements fully liberalised

       Full freedom to establish and provide financial services

   2000s
       Investor compensation system created

       New measures on transparency and good practices




Banco de España - Servicio de Estudios                                       3
THE SPANISH FINANCIAL SYSTEM IN 2003




     As a result the Spanish financial system is today a flexible developed
      and internationally active system well in line with those of other
      continental European countries


     Let us briefly review its main features




Banco de España - Servicio de Estudios                                         4
                        A BANK-BASED SYSTEM


                      Share of deposits in household financial assets in Spain:
                             Similar to the EMU average
                             Higher than in the USA

                                   HOUSEHOLD FINANCIAL ASSETS

           SPAIN                                  EMU                                   USA
         7%                                         3%                                  1%
                                                                                              15%
14%                                  23%                          30%
                        34%                                                       30%




45%
                                                                                               54%
                                           44%

                                   Deposits      Securities   Insurance   Other




      Banco de España - Servicio de Estudios                                                         5
                        A BANK-BASED SYSTEM


           Spanish corporations mainly use bank credit to cover their debt finance
                 Share of loans is similar to the EMU average and higher than in the
                  USA
                 Share of fixed income is similar to the EMU average and lower than in
                  the USA

                       NON-FINANCIAL CORPORATIONS FINANCIAL LIABILITIES
             SPAIN                                      EMU                                           USA
                                                     3%                                               1%
             2%                                                                                  6%         15%
                                               12%
                        24%                                            27%
22%


                           1%
                                                                          3%
                                                                                           51%
51%                                                                                                               27%
                                          55%

                                 Loans   Fixed income     Equity   Trade credits   Other




      Banco de España - Servicio de Estudios                                                                       6
                     THE BANKING SYSTEM


   Healthy, internationally active and compares favourably with the
    EMU average


                                          Spain              EMU      USA

                                  1995             2001


 Total assets (%GDP)              176.6           193.0   260.0     64.6
 Number of institutions
 per 100,000 inhabitants          0.81            0.70     2.45     3.36
 ROE (after tax)                  10.9            15.4     11.3     15.7
 Solvency ratio (Total)           11.9            11.0     10.7     12.4
 Solvency ratio (Tier1)           10.3             8.7      7.7      9.6
 Provisions/ Doubtful assets      71.0            201.9    95.6    171.7
 Efficiency ratio                 68.8            61.4     65.6     56.9
 Foreign claims (%GDP)            11.9            59.3     79.3      8.7




Banco de España - Servicio de Estudios                                      7
                    THE BANKING SYSTEM



     Although there are some differences among different types of
      institutions



                                      Commercial banks   Savings banks   Cooperative banks


  Number of institutions                   146                47               88
  Total assets (non-consol.) (%GDP)      102.4              69.0               6.8
  Total assets (consol.) (%GDP)          123.5              73.3               7.0
  ROE (after tax)                         15.7              12.7               9.9
  Solvency ratio                           9.5              11.5              11.1
  Percentage of business abroad           30.3               1.7               0.0
  Provisions/ Doubtful assets            172.1             222.0             155.8
  Efficiency ratio                        59.0              62.2              62.0




Banco de España - Servicio de Estudios                                                       8
                 OTHER INTERMEDIARIES



         Institutional investment is lagging behind the EMU average and the
          USA…

      % GDP                                                        % GDP
200                                                                            200
180           INSURANCE COMPANIES                                              180
160           MUTUAL FUNDS                                                     160
140           PENSION FUNDS                                                    140
120                                                                            120
100                                                                            100
 80                                                                            80
 60                                                                            60
 40                                                                            40
 20                                                                            20
  0                                                                            0
               SPAIN                      EMU                USA


 Banco de España - Servicio de Estudios                                              9
                 OTHER INTERMEDIARIES



                       … but has grown significantly over the 90s


                                          TOTAL ASSETS
     % GDP                                                           % GDP
60                                                                           60
                INSURANCE COMPANIES
50                                                                           50
                MUTUAL FUNDS
40                                                                           40
                PENSION FUNDS
30                                                                           30
20                                                                           20
10                                                                           10
 0                                                                           0
     1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001



 Banco de España - Servicio de Estudios                                      10
                          FINANCIAL MARKETS

       The organisation of financial markets has evolved from a segmented
        structure to a consolidated one:
                 Interconnection of stock exchanges
                 MEFF-AIAF-SENAF platform
                 Merger of SCLV and CADE
                          BOLSAS Y MERCADOS ESPAÑOLES sociedad holding mercados y sistemas financieros, SA

   Governing                STOCK MARKET MANAGEMENT COMPANIES
    bodies
                                MADRID             BARCELONA        MEFF-AIAF-SENAF holding mercados financieros, SA
                                BILBAO              VALENCIA

                                                                                 AIAF           SENAF

                                            SPANISH                                      MEFF HOLDING
    Trading                                  STOCK
                       Open                 MARKET
                                         INTERCONNEC                           MEFF FIXED       MEFF
                       outcry
    centres                                   TING                              INCOME         EQUITIES
                      trading               SYSTEM


                                                               IBERCLEAR
                                                                                                MEFF
   Clearing                                                                                   CLEARING
                                                          SCLV         CADE                    HOUSE
       and
   settlement
  of securities




Banco de España - Servicio de Estudios                                                                                 11
                     FINANCIAL MARKETS


     The relative size of the stock exchange and public debt market is similar
      to the EMU average but smaller than in the USA
     The relative size of the private debt market is smaller than in both the
      EMU and the USA

      % GDP
                                          SIZE                        % GDP
120                                                                           120
              STOCK EXCHANGE CAPITALISATION
100                                                                           100
              PUBLIC DEBT. OUTSTANDING AMOUNTS
 80           PRIVATE DEBT. OUTSTANDING AMOUNTS                               80
 60                                                                           60
 40                                                                           40
 20                                                                           20
  0                                                                           0
               SPAIN                      EMU                USA


 Banco de España - Servicio de Estudios                                             12
                     FINANCIAL MARKETS


       Public debt market is by far the most active and liquid exchange in Spain
                                         ANNUAL TURNOVER
         % GDP                                                            % GDP
350                                                                               350

300                                             STOCK EXCHANGE EQUITIES           300
                                                PUBLIC DEBT
250                                                                               250
                                                DERIVATIVES MARKETS. EQUITIES

200                                             OTHER FIXED-INCOME MARKETS        200

150                                                                               150

100                                                                               100

 50                                                                               50

    0                                                                             0



Banco de España - Servicio de Estudios                                                  13
                         FINANCIAL MARKETS


           Spanish financial markets show a high degree of internationalisation

     SHARE OF TURNOVER BY NON-RESIDENTS               OUSTANDING AMOUNTS HELD BY NON-
        %                               %               %       RESIDENTS      %
60                             STOCK
                                              60 60        STOCK EXCHANGE EQUITIES
                                                                                     60
                               EXCHANGE                    PUBLIC DEBT
50                             DERIVATIVES    50 50        PRIVATE DEBT
                                                                                     50
                               MARKETS.
                               EQUITIES
40                                            40 40                                  40

30                                            30 30                                  30

20                                            20 20                                  20

10                                            10 10                                  10

 0                                            0   0                                  0


     Banco de España - Servicio de Estudios                                          14
                         FINAL REMARKS




   The Spanish financial system is currently a developed, internationalised
    and healthy system


   It is still mainly a bank-based system although both other intermediaries
    and markets are gaining momentum


   Banks’ health and market consolidation place the Spanish financial
    system in a good position to face the challenges of financial globalisation




Banco de España - Servicio de Estudios                                            15

								
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