Banking Supervision

The supervisory model

Financial institutions are subject to a special regulatory and supervisory scheme that is much stricter than other economic sectors, due to the fact that it receives significant amounts of public funds by intermediating between deposits and loans, and due to the positive effect of a solvent and well-managed financial system on financial stability and economic activity in general.

Article 7 of the Law of Autonomy of the Banco de España establishes that it is responsible for promoting the smooth functioning and stability of the financial system and is responsible for supervising, in accordance with the prevailing provisions, the solvency, conduct and compliance of the specific regulations of credit institutions.

Following the coming into operation of the Single Supervisory Mechanism on 4 November 2014, credit institutions from Spain and other Eurozone countries are supervised within the framework of the mechanism, in which national authorities such as the Banco de España and the European Central Bank participate.

The applied supervisory model is aimed at guaranteeing the effectiveness and efficiency of this function, ensuring that credit institutions are adequately capitalised, that they comply with the regulations in force and prudently manage and control their business and risks.

The basic objective of the supervisory process is to determine and keep the risk profile of each institution updated, as well as adopting the necessary measures to correct it where necessary. This risk profile aggregates the possibility of a credit institution developing solvency, profitability or liquidity problems in the future, into a single variable.