How have Spanish financial market evolved in recent decades?
Spanish financial system size
CHAPTER 4: The Spanish financial system
Financial system
Set of institutions intermediaries and market that channel (canaliza) savings
Makes possible
L V
Transfers of risk
Transfers of funds
between economic agents from borrower to lender
Also can increase the economic growth by
Channeling more resources
to produce investment
The financial markets and intermediaries
They also offer incentives for the use
of financial assets
Direct financing
Funds are obtain directly
from investors or lenders
2 Banking models
Anglo-Saxon model
Markets are the main source of
financing for firms ( shares)
Banks are must be specialized
just in one type of activity
Bank-industry relationship exist
only for credit
Structure of financial system: international coparasion (% GDP 2022)
Spanish banking system = example of the continental model
Spain capital markets (as a % of GDP)
Coordinate preferences
of savers and investors
Increase capital
productivity
Asses the options for placing
(colocar) the financial resources
Helps to lower the economic
agents information costs
Indirect financing
Funds obtain from
financial intermediaries
Continental model
Banks are the main provider of
financial resources
Banks don't need to be specialized
just in one type of activity
Bombs are shareholder's in a lot
firms
Considerable growth until outbreak
The relative size is similar to the main EU countries
Renains the most relevant agent of SFS that provide financing to most countries.
as the crisis
Until recently banks growth capability was determine by Capability of attracting
A change with a increase in financial
customer funds
flows during I the last 30 years Anyways, the relative size of Spanish
Due to greater financial depth financial system Smaller than those that in some moment specialize in finance
(Thanks to economic development,
Growth in financial activity reflects opening, and modernisation)
Financial assets of financial households (1985 - 2022)
The development of Increase in
financial markets tradable securities
4. Monetary integration
(entry as non-resident investors)
Due to:
1. Improvement of 5. More sophistication
trading systems monetary policy
2. Public companies look for 6. Growing household incomes
cheaper sources of financing and financial culture
The Spanish banking system
3. Existence of public deficit 7. Increase in intermediaries
(increase in public. debt issues)
Banks Saving banks Credit Unions
From mid 90s strong increase in non-bank financial intermediaries
Use their profits Use their surplus Distribute the profits
to pay dividends to social works among partners
Due to: development of markets. Anyway their size remains small
compared to aglo-saxon countries
Legal differences determined how many funds they could rise Asymmetries
between them
Increase capital (banks) or reducing charity work ( saving banks, credit unions)
Allow savings bank to issue little (shares) with out voting rights
2010 major reform: saving banks allowed to conduct their financial activities
through the bank to wich they cede funds
Investment funds and insurance companies are the that have grown more but below What where the main features of the SBS by end of 2007?
Anglo Saxon countries (USA and UK)
Investment funds Saving banks increase their market share
with respect to banks (mid 80s)
Development of non-bak financial intermediaries Pension funds
The boom in non -banking financial intermediaries has Insurance companies
occurred in most European countries due to: By 2007 they were dominant
2 Still small in relative terms institutions for both
Greater financial
Doubt about
culture of savers
public pensions
Reduced the importance of
The both developments
banks as funds providers From mid 90s until 2007 the SBS
recorded high levels of both
To provide deposits
activity and profitable
Bank intermediaries are still crucial to families on small companies
Support payments
systems
Crisis and restructuring

More intense competition Banks developed Radically transformation

strategies os bank system
How is the new bank system?

Fewer entities but more concentration

+ merges and international expansion = less beaches and reduction in employees.
(At 2007 only 2 "big banks" BBVA and Santander).

Savings banks Increase their operation network

We had more branches than EU but smallers

 Note the differences between nominal (current) and real (constant) terms it we
Services (1985 - 2022)
CHAPTER 5: SPANISH PRODUCTIVE STRUCTURE keep prices constant over time, what does this mean?

Services have gained weight on Constant prices capture growth in production

Productive activity= process of transformation to a good or service (On the last 3 decades )
Services grew less in weight
3 sectors of economic activity
GVA at current Employment In constant prices Agriculture loses are less
prices
Primary Secondary Tertiary
Energy and industry have stayed constant

Extraction and production Production of finished goods or involved Services

Their share of GVA at constant prices has remain basically unchanged until very recently
of raw materials in manufacturing or construction Productive specialization and foreign trade
Productive structure Participation rates of services in the GVA and employment (1 985 - 2020)
Similar to other EU countries:
Economic growth = change in Weights of the different sectors Relative weight of agriculture
This graphic shows what we have seen
before: higher (2'64 vs l'9%)
Productive sector plays the next roles in economic growth: Construction doubled his weight
Surplus labor An increase of weight on GVA at but was corrected after crisis
current on prices employment
Agriculture (important on the first phases): provides Finance for
industrialization An that has remained relatively stable Tourism
Businesses services
Manufacturing: keg for country income (capita income) by increasing productivity Services sector take more importance (similar weight) due to: (outsourcing and ICT)

Health and education in prove Retail (comercio

Construction: provides infrastructures minorista)
and increase human K Labour productivity (2000 - 2022)
Trade, transport and Specialization in traditional manufacturing sectors due to:
Services: satisfy needs We can see slower growth
communication link the eco. agents
services productivity Relative abundance of work SMEs companies relative delay

Finance: allow transfers between savers and investors

The new EU members have been priority destinations relocation processes
Due to sector being labor
Let's see all this in Spain Low importance of knowledge based activities
intense but little technological
progress or innovations
Manufacturing (1985 - 2022)
Classification of Inter-industrial specialization by technological intensity

1. Low/mid tech 2. Lower/med tech 3. High tech

In Spain have a higher weight A bit lower than EU Much lower than EU
Until recently services price ( decrease as the tech
level> manufacturing price level complexity increases)
+ services data
Due to in the past, services Trade and repairs + accommodation and food + real estate and
prices grew more rapidly business = 50% of the sector
because of lower level of
Tourism sectors more weight than in EU
Productivity Competition Real estate and business = 15% of GDP
Real prices gains
Big importance on
Employment
Reduced weight of the Relatively higher Low technology
Cannot absorb increase on unit labor cost (ULC) most high tech sub sectors degree of specialization manufactures
within Spanish in labour intensive
The loss on gross value added (GVA) Current prices > constant prices During crisis public services
Since the 80's all sectors lose weight, except services : manufacturing
are less cyclical
Loss on employment > loss on GVA current prices
Due to:
Productivity Competition Slower growth in prices
Factor endowment + small company + relative tech delay
Why is Spain specialized in traditional manufacturing?

It focused on internal demand (faces less international competition)

It use standardized tech with are more suited to Spanish factor endowments
-

Abundant labour Relative scarcity of Firm ecosystem

(lower relative wages) human and tech K dominated by SMEs

Foreign investment initially focused on mid and high tech From mid 90s redirected to central-
eastern eu (invests on advanced tech)

Gains in efficiency at which

Sustained economic growth has to be based on
goods and services are produced
Labor productivity is a good indicator of it

LP increased more in manufacturing than in other sectors with more labor intense and less tech progress

€/Hour worked increased in manufacture and agriculture

The slow lp growth is related to the sector composition but all sectors had difficulties to grew due to:
-

Low competition and rigidities in: Slow growth in ULC relative high Lose of
Goods and services productive efficiency competitiveness
Labor markets
Bureaucracy
....

Worsened by increase in specialization

in slow LP growth sectors as tourism

Comparative sectoral labor productivity, 2022 (EMU=100)

100 = output per worker EMU average for each sector (in PPA). Values indicate relative
higher or lower efficiency in the sector

Agriculture averse output per

worker (117) > emu average (100)

Factors that explain the lower productivity of services in Spain:

Law level of Slow technological Small firms Low specialization in un

competition progress skilled labor-intensive