Regulation is good but not enough: The historical origins of banking supervision in Spain, 1850-1936

The aim of this paper is to analyse the early stages of banking supervision in Spain, implemented between the second half of the nineteenth century and the first third of the twentieth century. We provide empirical evidence about the main factors behind the emergence of supervision, the supervisory authority, who the supervisors were, the regularity of inspections and the main inspection activities. We show that Spain was an example of early implementation of supervision, through the Banking Law of 1856 and the Banking Law of 1921. However, early regulations did not prove to be effective at reducing banking crises. We also show that banking instability produced a moderate reaction in terms of bank inspections during the second half of the 1920s and the 1930s. Those inspections were interrupted by the Spanish Civil War in 1936, an event that prevented a breakthrough in the supervisory tasks.