The Council of Ministers has been informed today about the Draft Law of Banks and Bank Foundations for its subsequent referral to the State Council. The standard complies with the commitments contained in the Memorandum of Understanding (MoU) agreed with the European Union (EU) as part of the assistance program for the recapitalization of the financial sector. This agreement implies the approval of a new legal framework by the Spanish side to clarify the role of the savings bank sector as shareholders of banks, the strengthening of good corporate governance standards and the incompatibility requirements of both savings banks and banks controlled by them.
This rule is part of the National Reform Program that the Government approved last week. The new legislation on savings banks aims to advance the process of sanitation and recapitalization of the financial sector, as an essential basis for the return to economic growth and job creation. It means, on the other hand, to advance in Spain's compliance with the calendar agreed with the EU within the MoU. At the end of last November, a normative text was submitted to public information, which now enters the final stretch for approval as a Bill by the Government foreseeably at the end of the month and its subsequent parliamentary process.
Regarding savings banks, the Draft Law implies a return to the original limits of these institutions in terms of their financial activity, which will focus on the retail segment and its territorial scope of action. If these limits are exceeded, the funds must transfer their financial activity to a bank that will be participated by a banking foundation. The limits are as follows:
- Material: explicit linking of the financial activity of the savings banks with retail clients and small and medium-sized businesses. The savings banks may not engage in other complex financial activities.
- Territorial: the scope of the savings banks may not exceed that of an Autonomous Community or ten neighboring provinces.
- Volume: savings banks may not have an asset exceeding 10,000 million euros or a deposit quota above 35% of those of the Autonomous Community in which they operate.
It also introduces a new regulation of the governing bodies of savings banks that affects the general assembly, the control commission and the board of directors. The control commission is maintained because the banks lack shareholders and therefore it is necessary to regulate an electoral mechanism to constitute the general assembly. The control commission shall ensure the proper functioning of this electoral procedure and the social work of the fund, among other functions related to the operation of the board of directors. The figure of the CEO has been deleted.
An electoral system is established by virtue of which two fundamental objectives are to be achieved: avoid political control of the boxes and attribute said control to the main stakeholders, the impostors or depositors.
- The general assembly will include the representation of the depositors, the founding will of the box and the recipients of the social work.
- The number of general directors will be between 30 and 150. The term of office will be between 4 and 6 years.
- Representatives are attributed to the imposters of between 50% and 60% of the general directors. In no case may the Public Administrations appoint more than 25% of the general directors.
- There will be a turn of large impostors, of not less than 50%, to ensure that they are adequately represented in the general assembly. The rest of the general councilors corresponding to this shift will be chosen by the system of committees, designated by lottery among the other impostors. The renewal of the general councilors representing imposters will be done by halves.
The norm increases, on the other hand, the professionalization of the governing bodies of savings banks in the following aspects:
- Measures to ensure that the members of the governing bodies of the savings banks perform their functions in their exclusive interest and in accordance with criteria of efficiency and good financial management. The incompatibility of being part of the governing bodies with the assumption of executive positions in political parties, business organizations and trade unions is strengthened.
- The members of the board of directors are no longer required to reflect the proportions of representative quotas in the general assembly. On the contrary, it is required that at least half of the members of the board be independent, and those who are general directors cannot have such consideration.
- It requires that all members of the board of directors have the appropriate knowledge and experience for the performance of their duties, in the same terms that are provided for board members in banks. They will be required to have the requirements of honorability, experience and good governance required by law.
- Proportionality is also required based on the economic dimension of each fund to determine the total number of members of the Assembly and the board of directors.
- It requires that more than half of the members of the board of directors and the control committee be independent members. The chairman of the control commission must also have this condition.
As regards banking foundations, the Draft Law defines its legal regime. Heirs of the foundations of special interest provided for in Royal Decree-Law 11/2010, of July 9, governing bodies and other aspects of the legal regime of Savings Banks, are those foundations that have a participation greater than 10% in a credit institution.
The MoU approved by Spain demanded that there be a gradual divestment of the old savings banks in the banking entities until their participation reached levels of non-control. To achieve this objective, the draft bill provides for two measures that operate consecutively:
- In the first place, the draft Law requires that the funds that currently carry out their actions in indirect exercise regime, as well as the boxes that have a volume greater than the limits provided in the standard (that is, when maintaining a participation in a credit institution that reaches, directly or indirectly, at least 10% of the capital or voting rights of the entity, or that allows it to appoint or remove a member of its administrative body), become foundations Bank
- Once transformed into banking foundations, a legal regime has been designed for these new entities that reinforces financial control based on the degree of effective control they exercise in the investee.
The preliminary bill distinguishes:
- General obligations for all banking foundations (those that have a participation in the credit institution of at least 10%, regardless of whether or not they were previously cash)
- Obligations for banking foundations with a participation in the credit institution of at least 30%.
- Obligations for banking foundations with a participation in the credit institution of at least 50% or with a controlling interest.
All bank foundations, without exception, are subject to rigorous corporate governance requirements. In particular, the members of the board of trustees of the banking foundations are prevented from being the board of directors of the credit institution. In addition, they will be subject to a control regime that will be carried out by the Bank of Spain in the framework of their financial supervision functions and by the protectorate in corporate governance. The protectorate will correspond to the Ministry of Economy and Competitiveness when the banking foundation has a main scope of action superior to that of the Autonomous Community.
In addition, bank foundations with a participation greater than 30% in a credit institution must submit to the Bank of Spain for approval a protocol for managing their participation in the bank. This will regulate the criteria for managing the foundation's participation in the bank, the relations between the two, the rules on related operations and the Financial Plan to cover the bank's capital needs.
Additionally, bank foundations with a participation greater than 50% or that hold control positions in a credit institution will be required to present in their Financial Plan a strategy of investment diversification and risk management that avoids the concentration in assets issued by a Same counterpart. In addition, you will have to have a Reserve Fund to deal with possible own resources needs of the investee credit institution.
Bank foundations may not participate in capital increase processes of the investee credit institution in order to reach or maintain control positions. They may only approve dividend distribution with a quorum and majority reinforced (presence of 50% of the capital in the first call and 25% in the second call, plus approval of three quarters of the capital present at the Meeting).
Overall, the regulation regarding savings banks and bank foundations must respect the competence of the Autonomous Communities, with the State issuing basic legislation. The established distribution of powers regime is not altered in this regard. In the case of banking foundations, as well as in the case of ordinary ones, state or regional dependence will depend on whether their main activity is carried out in a single CCAA (in which case the protectorate will be exercised by the CCAA), or if it is developed in more than one CCAA (in which case the protectorate will be exercised by the State, through the Ministry of Economy and Competitiveness).