Banking System and Monetary Policy in Spain Founded in the late eighteenth century The Bank of Spain that

exists today oversees 353 institutions. t is the depository system for the Spanish government and the clearinghouse for other !anker"s discounts and related operations. #s central !ank$ it assists developing and applying monetary policy %hile operating in accordance of the &uropean 'entral Bank (&'B) and other &* Mem!er"s central !anks. The !anking system is regulatory !y the Bank of Spain$ %hich oversees the compliance and solvency of the smaller !ranch !anks. The limitations of an &* !ank contri!ute overall to sta!ility of the !anking system in &urope. *nder the +,,- .a% of #utonomy$ the government or any other &* !ody cannot instruct the !ank in its functions due to its mem!ership %ithin the &uropean Systems of Banks (&S'B). This means that the Bank of Spain is accounta!le for their actions and adheres to transparence as a self/governing !ody. The financial crises led to the restructuring of Spain"s financial sector that had little or no effect on the Bank of Spain since it did not invest or market in any of the complicated credit products that other !anks did at the glo!al level. *nfortunately$ the !anking system still had im!alances during the ups%ing of Spain"s economy from +,,0/1220. This has led to ne% reforms that for o!taining capital$ ne% la%s

for the savings !anks and the reinforcement of transparency in effort to restore trust and confidence in the !anking system. The monetary policy pertains to price sta!ility in the euro area. The national central !anks carry out the policy decisions$ %hich are set to target controlling inflation in the euro area. The policy also enforces currency exchange operations$ issuing legal tender !anknotes$ issuing regulations in relations to !ank functions$ prepare reports and represent Spain in connections to the functions as Bank of Spain. Monetary policy affects economic development due to inflation influence on the monetary supply %hich is %hy monetary aggregates is monitor and the information is then use for monetary policy and ho% inflation is trending.

The &uropean 'entral Bank (&'B) defines and implements the monetary policy for the &* area$ the decision/making !ody of the &'B is the 3overning 'ouncil and the &xecutive Board %hich governs the &urosystem there!y ensuring the &S'B and &urosystem are a!le operate in accordance the &' Treaty. The &'B supports the general economic policies of the &* in enforcing the mandate of price sta!ility4 this is in contrast to the limited monetary policy of the &*. The cost5!enefit for the &* Mem!er States that are part of the &'B is define !y the 3overning 'ouncil of the &'B as maintaining price sta!ility !y maintaining inflation rates !elo% or close to 16 in the medium term. This means accessing real indicators$ financial conditions of the economy and pro7ections of the &uro8one as set !y experts in the &urosystem. The monetary analysis is a crosscheck counter!alance to the economic analysis$ %hich is checking the short/term against the long/term. The !enefit of price sta!ility is an effort to maintain consistency level of prices in order to avoid extended cycle of inflation or deflation.