The supervisory model in Spain

Financial institutions are subject to a special regulatory and supervisory regime that is much stricter than for other economic sectors. This is because financial institutions receive significant amounts of funds from the public (in their role as intermediators between depositors and borrowers), and because of the positive effect a solvent and well-managed financial system has on financial stability and economic activity in general.

Article 7 of the Law of Autonomy of the Banco de España states that the Bank is responsible for promoting the smooth operation and stability of the financial system and for supervising, in accordance with existing regulations, the solvency, conduct and compliance with specific regulations of credit institutions.

Since the launch of the Single Supervisory Mechanism on 4 November 2014, Spanish and other euro area banks have been supervised within the framework of this mechanism, in which national authorities (including the Banco de España) and the European Central Bank participate.

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

The supervisory process primarily seeks to determine and keep each bank’s supervisory risk profile updated, taking any measures considered necessary to correct it.

To do this, each year the banking sector’s sources of risk are identified and a set of supervisory priorities are defined, bearing in mind the economic and financial environment, regulatory developments and the main risks and vulnerabilities facing the banking system. The annual supervisory plan, which details the following year’s supervisory activities, is prepared each year on the basis of the supervisory priorities.

Banks are supervised through two complementary channels: off-site ongoing supervision and on-site supervision.   

  • The main purpose of ongoing off-site supervision actions is to have an updated opinion on banks’ situation and risk profile. The depth of the analysis is determined on the basis of each bank’s supervisory priority, which depends, among other factors, on its risk profile and size.
  • On-site supervision includes two types of actions. First, through their on-site inspection visits, the supervisory authorities can verify the information provided by the banks and carry out a more in-depth analysis of specific aspects. Second, through their investigation of internal models, the supervisory authorities review and, where appropriate, authorise banks’ models for calculating the capital requirements needed to cover credit, counterparty, market and operational risks.

These activities are complemented by the periodic performance of stress tests.