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From the Banco de San Carlos to the Banco de España

The Banco de España as we know it today was founded in the late 18th century. Since then it has witnessed, and occasionally taken a leading role in, political, economic and social developments in Spain.

The following are some of the landmark events in its history: 

1782

The Banco Nacional de San Carlos was founded on 2 June by a Royal Warrant signed by King Carlos III. The Bank was based on a project submitted by the Count of Cabarrús to the prime minister, the Count of Floridablanca.

Its objectives were: to provide financial support to the State, facilitating the circulation of vales reales (government debt) and converting them into cash; to supply provisions and uniforms for the armed forces; to meet the Crown's payments abroad; to combat usury, and to provide credit to commerce and industry.

It was a modern institution for its time. Its capital was private and was divided into shares. It paid out dividends and the Shareholders' Meeting was sovereign over individual shareholders, including the King himself.

It issued the first Spanish banknotes, called Banco de San Carlos warrants, although they were not well-accepted by the public.

After various mishaps and difficulties, mainly caused by Spain's confrontations with France and England, its financial potential waned and it focused its efforts on finding a solution to the enormous debt that the Government had incurred with the institution and was unable to settle.

1829

The Government and the Banco Nacional de San Carlos reached an agreement whereby the Bank waived the sum of almost 310 million reales owed by the Government in exchange for giving its shareholders 40 million reales in shares of the Banco Español de San Fernando, a bank created by the Royal Warrant of Fernando VII on 9 July. This institution was founded as a bank of issue with the power to issue notes in the kingdom's capital - a privilege it held exclusively until 1844 - and the task of financing the Government.

1844

The Banco de Isabel II came into being from a private initiative aimed at promoting trade. It was authorised to issue bearer banknotes, leading to opposition from the Banco Español de San Fernando which initiated an array of ultimately unsuccessful legal proceedings against the new bank.

1847

The Banco de Isabel II found itself on the brink of having to suspend payments to creditors, mainly due to Spain's low level of economic activity and its financial crisis, which led to a merger with the Banco Español de San Fernando.

The new Banco Español de San Fernando was thus founded, with the power to issue banknotes in Madrid and to set up branches in cities that did not have a bank of issue. At that time there were only two other institutions that could legally issue banknotes in Spain: the Banco Español de Cádiz, founded in 1846 as a branch of the Banco de Isabel II, and the Banco de Barcelona, the first non-official commercial bank in Spain, founded in 1844.

1856

The Law of 28 January 1856 renamed the new Banco Español de San Fernando as the Banco de España. The Law empowered the State to appoint the governor and two deputy governors, and established a system based on several banks of issue, limited to one per financial centre.

In the wake of this liberalisation, entrepreneurs and traders started to set up banks in the main Spanish cities and the Banco de España opened its first branches in Alicante and Valencia.

1868

The Minister of Finance, Laureano Figuerola, declared the peseta - divided into 100 cents - as the basic unit of the Spanish monetary system. The first coins were minted in 1869.

1874

The Decree-Law of 19 March 1874, moved by the Minister of Finance, José de Echegaray, ended the system based on various banks of issue and granted the Banco de España the monopoly on issuing banknotes in mainland Spain and its islands, in exchange for a large loan to cover the Government's financial requirements.

The other banks had to choose between remaining as commercial banks, without the power to issue banknotes, or becoming part of the Banco de España as branches. Most provincial banks opted for the latter course, with only five deciding to continue as commercial banks.

At that time the Gold Standard began to prevail in Europe, in much of the Americas and in Japan. However, Spain did not adopt this standard and its recently printed peseta banknotes were never exclusively convertible into gold.

1921

The Banking Law of 29 December 1921 or Ley Cambó reorganised the financial system and regulated for the first time relations between the Banco de España in its capacity as the central bank and the private banks.

Under this legislation its capital was increased, it was assigned the task of supervising private banks and it became the main body for the Government's monetary policy, establishing a preferential interest rate for rediscount operations with other banks. The first steps were also taken towards an international exchange rate policy and the Treasury's share in the Bank's profits was determined.

In effect, this Law was responsible for converting the Banco de España into a fully-fledged central bank.

1936-39

During the Civil War the country was split into two areas, one controlled by the Republican army and the other by the Nationalist army. The Bank was also divided into two, giving rise to two issuing institutions and two different pesetas, each recognised solely in their own area of issue.

The bulk of the Bank's gold reserves was sent to Moscow and used to finance the war effort.

After the Civil War, the Minster of Finance, José Larraz, took control and initiated the reconstruction of the financial sector and the Banco de España itself.

1946

Financial policy was laid down in the Banking Law, which conferred most monetary policy powers on the Government, making the Banco de España a mere instrument of the Ministry of Finance. The Law highlighted its role as a bank of banks , stipulating that private banks had to deposit a certain percentage of their deposit liabilities with the Banco de España.

The Stabilisation Plan of 1959 laid the foundations which allowed the Banco de España to recover its powers as Spain became more politically and economically open.

1962

The Law regulating Credit and Banks of 14 April 1962 entrusted the Ministry of Finance with responsibility for monetary policy but recognised the Banco de España’s authority and technical expertise to implement and devise the measures needed.

The Decree-Law on Nationalisation and Reorganisation of the Banco de España of 7 June 1962, in compliance with and application of the Law of 14 April 1962, nationalised the Banco de España, which ceased to be a public limited company. It also established the functions of the Bank: issuance operations; treasury services for the State and financial services relating to government debt; the implementation of monetary policy; regulation of the money market; provision of information and advice to the Government on currency and credit; international payments; preparation of statistics and risk information; and the control and supervision of private banks.

However, the Bank did not control foreign payments or the centralisation of reserves until 1969.

1971

The Law Regulating Official Credit of 19 June 1971, enacted by a subsequent Royal Decree of the Ministry of Finance, granted the Banco de España supervisory powers over savings banks and credit co-operatives.

1980

The Law on the Governing Bodies of the Banco de España of 21 June 1980 acknowledged the Bank's substantial autonomy from both a functional (as in monetary policy) and organisational standpoint.

1988

The Law on Banking Discipline and Intervention regulated the supervisory function of the Banco de España, extending it to all types of credit institutions (banks, savings banks, co-operatives and specialised credit institutions) in Spain and abroad and, albeit with limited responsibilities, to branches of Community banks operating in Spain.

1994

The Law of Autonomy of the Banco de España definitively conferred responsibility for monetary policy on the Banco de España while also ensuring its independence from the Government when designing monetary policy. The ultimate impetus behind the formal recognition of this autonomy was provided by the European Monetary Union project, which held that the central banks of countries wishing to join the Union must be independent of political power.

The Law significantly modified the relationship between the bank of issue and the Government. Firstly, the financing of general government was prohibited. The Banco de España had also to confine itself to informing the Government of the objectives and implementation of monetary policy, and could not request or accept instructions from the Government or from any other national or Community entity. Relatively long (six years) and non-renewable mandates were also set for the governor and deputy governor of the Bank, strictly stipulating the possible causes for termination of their term of office.

1998

Law 12/1998 of 28 April 1998 amended the Law of Autonomy, establishing that the Banco de España was part of the European System of Central Banks (ESCB), together with the other national central banks of EU Member States and the European Central Bank (ECB). Preparations were finalised to create the single European

1999

On 1 January 1999 the euro became the currency for eleven countries of the European Union (EU): Spain, Germany, Austria, Belgium, Finland, France, Ireland, Italy, Luxembourg, the Netherlands and Portugal, with Greece adopting the single currency two years later.

The participating Member States adopted the euro as their unit of account and have since shared a common monetary policy.

2000-09

The European integration process culminated on 1 January 2002 when the new euro banknotes and coins were put into circulation, replacing the legacy currencies.

This was also a period of adaptation to the new International Accounting Standards (IAS) and their application to credit institutions. In the European arena, the Banco de España became a fully-fledged and active participant in the Eurosystem and on various European Union (EU) Committees.

The Bank was also present in other multilateral bodies and fora, such as the International Monetary Fund, the Bank for International Settlements, the Centre for Latin American Monetary Studies and the Basel Committee on Banking Supervision, considered the global creator of regulatory and supervisory standards and whose main objective is to standardise prudential banking supervision practices worldwide.

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