History of the Banco de San Fernando: 1829-1847
A few years later, there were accusations of corruption at the management of the Bank in relation to abuse by directors of the privileges; of the granting to shareholders of loans secured by their shares, contravening the provisions in the Statute; and of the manipulation of the price of vales reales on international markets.
The financing of wars, waged during Carlos IV’s reign, required further issues of vales reales, suspending their convertibility temporarily. The government continued resorting to loans of this institution, depleting all its resources and preventing the export of silver (main source of profit).
The Napoleonic invasion compounded matters even further, leading the institution to the edge of collapse. It was paralyzed for years and was reduced to the claims of the Treasury for the payment of its debt. Finally, the government proposed that the Bank’s debt of 316 million reales be settled in exchange for 40 million in cash, with which the capital stock of a new bank could be constituted. The operation to re-fund the Banco de San Carlos entailed a loss for the shareholders of 87%, but it was accepted because there wasn’t another choice, and the Banco de San Fernando came into being.
1. The Banco de San Fernando (1829-1847)
The new bank resembled a private bank set up as a limited company.
Functions
- To open accounts and deposits for individuals and to perform all kinds of financial operations (discounting of bills of exchange and the extension of credit and loans to the private sector).
- To make Crown payments abroad.
- To be the financial agent of the Treasury, to which it would forward the amounts expected to be collected with next taxes, or to which it would grant further loans.
- To issue banknotes for Madrid on a monopoly basis.
During the first four years, the bank hadn’t any problems because of the conservative management policy pursued, structured around the following two courses of action:
- To maintain limits on the volume of banknotes issued, loans, and credit; not to grant long-term loans; and to maintain a high reserve requirement, more than double that of sight liabilities.
- To exercise all due care in relations with the Treasury so as not to incur the same problems that led to the bankruptcy of Banco de San Carlos.
With the Carlist Civil War, the economic situation became complicated, and the Treasury forced the Banco de San Fernando to offer assistance; the volume of banknotes in circulation increased, and the Bank’s balance sheet became weaker. In 1839, there was a notable improvement in the economic situation, strengthened by the tax reform (1845).
The banknote-issuance monopoly ended with the authorization of the Banco de Isabel II (Madrid) and the Banco (Barcelona) to issue banknotes. This was a threat to the Banco de San Fernando, as the Banco de Isabel II pursued a very active and aggressive lending and investment policy. Later, the Banco de Isabel II opened a branch in Cádiz. These events led the Banco de San Fernando to abandon its conservative management policy.
With the international crisis that broke in London (1847), the Banco de Isabel II had a weak position, and its share price fell dramatically, and the situation of the Banco de San Fernando was better, but still…