ABSTRACT

This chapter analyses the political and economic foundations of the Spanish banking regulatory framework after the Civil War. Section I examines the main theoretical interpretations of the causes of regulation in the banking sector. This section is divided into two parts. Part 1 examines the ‘public interest’ theories of regulation. Economists have traditionally justified regulation on the basis of market failures and as banks play an essential role in economic performance, regulation is often seen as a means of avoiding market failures and of improving efficiency. Part 2 discusses the ‘capture theories’ for regulating the banking sector where regulation appears as a set of government favours demanded and controlled by industrial and other interest groups. It also examines the supply of favours by the government. Section II analyses possible explanations for the emergence of the Spanish banking regulatory framework and its development from 1939-40 to the mid-1970s. Here, I discuss whether in fact the Franco government used regulation to offset market failures or whether regulation was a means of using State power in the interests of the regulated sector: the banking industry.