Banking Supervision and the Role of Banco de España

Posted on Mar 5, 2025 in Business Administration and Management (BAM)

Banking Supervision and the Single Supervisory Mechanism

Banking supervision aims at restoring citizens’ confidence. Consequently, the Single Supervisory Mechanism (SSM) was launched, a banking supervision system and the competent supervisory authorities. Its main objectives:

  • To ensure the safety and soundness of the European banking system
  • To promote financial integration and stability in Europe
  • To ensure supervisory consistency

This is the first step towards the “Banking Union,” of which the Single Resolution Mechanism is also part. The Single Resolution Mechanism commenced operating in 2015, for example in the Banco Popular crisis, and in the same year the European Commission tabled a proposal to create a deposit guarantee scheme in the euro area countries, which has yet to be implemented. The Banking Union will be further strengthened by a single regulatory code.

During the process of European integration, national banks have retained their own legal personality and are governed by the legislation of their respective countries.

Functions of the Banco de España

The Banco de España is part of the Eurosystem to which the ECB is key. The ECB’s functions as coordinator and keystone of the entire European System of Central Banks (ESCB) according to the Treaty on the Functioning of the European Union are:

  1. To define and implement monetary policy with the principal aim of maintaining price stability across the euro area.
  2. To conduct currency operations to maintain the exchange rate of the euro.
  3. To hold and manage the official currency reserves of the euro area member countries.
  4. To promote the sound functioning of payment systems.
  5. To authorize banknote issuance in the euro area, which is a competence exerted exclusively by the ECB.
  6. To gather, compile, and disseminate the statistical information necessary to perform the functions of the ESCB.
  7. To cooperate, in relation to the functions assigned to the Eurosystem, with institutions, agencies, and fora, both within the EU and internationally.
  8. To contribute to the stability of the financial system. The ECB is responsible for the prudential supervision of credit institutions domiciled in the euro area countries and performs these functions within the framework of the Single Supervisory Mechanism.

The Banco de España functions in cooperation with the Eurosystem:

  1. To define and execute monetary policy.
  2. To conduct foreign operations.
  3. To promote the sound functioning of payment systems in the euro area. Under this heading are potential operations for the urgent provision of liquidity to institutions.
  4. To produce, issue, and distribute legal-tender banknotes.

The obligations of the Banco de España as a member of the ESCB:

  1. To hold and manage the currency and precious metal reserves not transferred to the ECB.
  2. To promote the sound functioning of financial system stability and of domestic payment systems.
  3. To supervise the solvency and compliance with the specific regulations governing the credit institutions, other institutions, and financial markets whose supervision it is responsible for.
  4. To put coins in circulation.
  5. To prepare and publish the statistics relating to its function and to assist the ECB in the compilation of statistical information.
  6. To provide treasury and financial agency services for government debt.
  7. To advise the Government and to draft the appropriate reports.