Spanish city banishes a character in popular tale (5)

I believe the answer is:
bilbo
'popular tale' is the definition.
The definition suggests a singular noun which matches the answer.
'spanish city banishes a character' is the wordplay.
'spanish city' becomes 'Bilbao'.
'banishes' indicates named letters should be taken away.
'a character' becomes 'a'.
'bilbao' with 'a' taken away is 'BILBO'.
'in' is the link.
Can you help me to learn more?
(Other definitions for bilbo that I've seen before include "The Hobbit hero" , "___ Baggins, a leading hobbit" , "Frodo's uncle (LOTR)" , "sword" , "Rapier - I blob (anag)" .)
