Key Financial Products and Banking Institutions Explained
Assets and Liabilities
Includes cash, bank deposits, loans, stocks, bonds.
Fixed Income Products
Large companies seeking loans may issue debt securities (like bonds) to many investors. These investors receive agreed-upon interest payments and become lenders by acquiring these securities. If investors need their funds before the maturity date, they can sell the securities in the secondary market.
Equity Products
Shares of a company are equity securities because their owners receive dividends based on the company’s profits. These shares do not have an expiration date.
Bank Liability Products
Credit institutions obtain funds through deposit products. Customers who deposit funds receive interest and access to other cash services, effectively acting as lenders to the bank.
Bank Asset Products
These are the counterpart to liability products. Banks and finance companies provide funds to individuals and businesses through instruments such as discounted bills, credits, and loans.
Other Financial Products
Other financial products include: mutual funds, insurance (property, casualty, and life), security funds, pension plans, and retirement plans.
Official Credit Institute (ICO)
A public banking institution.
- Nature: It is considered the state financing agency, possessing legal personality, its own property, and financial resources.
- Autonomy: Granted managerial autonomy to fulfill its purpose, which is to support and promote economic activities contributing to growth.
- Principle: Must respect the principle of financial equilibrium and cannot sustain losses.
- Role: Helps mitigate the economic effects of events like disasters, provides business loans and grants, and acts as an instrument for implementing economic policies.
- Operations: Primarily implemented through medium and long-term loans, based on standard banking criteria.
- Activities:
- Formalizes, manages, and administers funds, grants, loans, etc.
- Takes direct stakes in financial firms.
- Provides financial advice to public or private bodies.
- Funding Sources: Its own resources (property), contributions from the State, and issuance of securities (bonds, notes).
Commercial Banks Structure
- Legal Form: Must be incorporated as a Public Limited Company (Sociedad Anónima – SA). Shares must be fully paid in cash from the company’s inception.
- Capital: Must maintain a minimum capital level.
- Significant Shareholders: Members holding at least 5% of the capital must meet specific requirements (e.g., not be under prosecution for certain offenses, not legally incapacitated, not involved in bankruptcy or insolvency proceedings).
- Governance:
- General Meeting of Shareholders: Shareholders can attend and exercise their voting rights. The Ordinary General Meeting approves the previous year’s accounts and decides on the application of profits.
- Extraordinary General Meeting: Can be convened to address specific issues proposed by management or shareholders.
- Board of Directors (Consejo de Administración): Composed of directors and led by a president, responsible for corporate management.
- Auditors: Independent auditors certify the accuracy of financial statements and management reports prepared by the Board of Directors.
Savings Banks (CCAA)
Likely refers to Cajas de Ahorros.
- Legal Status: Typically operate as foundations. Founding institutions can be public entities (like county councils, municipalities) or private ones.
- Capital: They do not have share capital but possess an endowment fund with a required minimum amount.
- Growth Constraints: Cannot increase capital through issuing shares to fuel growth.
- Methods for Growth:
- Self-financing: Retaining profits as reserves (Reserves = Profits – Allocation to Social Work).
- Subordinated Borrowings: Issuing long-term (L/P) or perpetual debt, often with floating interest rates. These are repaid last if the entity is liquidated.
- Issuance of Participation Quotas (Cuotas Participativas): Securities similar to shares but typically without voting rights. They are traded on the Stock Exchange, offer remuneration linked to profits (equity-like), and are perpetual.
- Preferred Stock Issuance: Issuing long-term (L/P) securities with fixed interest payments.
- Absorption of Entities: Merging with or acquiring other entities (e.g., other savings banks or potentially banks, though banks cannot acquire CCAA via share exchange due to their foundation status).
- Governing Bodies: Include a General Assembly, a Board of Directors, and a Control Committee.
- Regulatory Oversight: Regulatory powers over CCAA were often transferred to the Autonomous Communities (regions) in Spain.