Technical Progress in Spanish Banking: 1985–1994

Over the last decade, the Spanish banking sector has undergone a radical structural change. The old bank status quo has broken down because of both the impact of technical change and a strong deregulation process, which has given way to a much freer and competitive economic environment. Actually, the process of integration into a unique European Financial Market increased the role of product and price competition among banks. Such increase in competitiveness, made possible by a more liberalised regulatory framework, reached an intensive level throughout the whole period. Many private commercial and savings banks, without abandoning their own traditional role as financial intermediaries, started to compete among themselves to gain a share in the deposit and loan markets. More specifically, branch expansion was deregulated for private commercial banks in 1985; interest rate ceilings disappeared in 1987; investment coefficients that had frozen a very significant share of total assets in regulated loans and public debt were gradually eliminated; the ban on branch expansion for savings banks beyond their regional markets was lifted in 1989; the limitation that prevented savings banks from performing specialised financial activities disappeared in the late eighties; and the coefficient on demand deposits was dramatically reduced in 1990. As a result, all kinds of banks had to adopt a new strategy to survive under the new environment. To do so, they had additional instruments: branch expansion, pricing strategies, mergers and acquisitions, coordination policies, etc.