The Council of Ministers has approved the referral to the Cortes Generales of the Draft Law (PL) on Recovery and Resolution of Credit Institutions and Investment Services Companies with which Spain adapts to European regulations regarding the Banking Union . The aim is to establish a common European framework for the restructuring and resolution of credit institutions with the aim of preserving financial stability and minimizing the cost to the taxpayer. The Banking Union constitutes the most ambitious integration project since the adoption of the euro and is based on two pillars, the Single Supervisory Mechanism (SSM), already in force, and the Single Resolution Mechanism (SRM) that entails the creation of the Fund European Resolution, endowed with 55,000 million euros, of which 5,300 will be contributed by Spanish banks.
The norm approved today has passed the process of the Council of State and has incorporated its observations. It establishes a new system of assumption of losses for the creditors of the entities in resolution, so that the first will be the shareholders and the creditors. A National Resolution Fund is established, which will contribute to the corresponding European fund and which will be endowed annually with the resources of credit institutions in order to reach at least 1% of the guaranteed deposits to be covered in 2024. The entities, for their part must be provided with recovery and resolution plans reviewed annually. The MUR, scheduled for 2016, will act on 90% of Spanish entities. For its part, the current FROB will be the national authority and will have an independent president and the Bank of Spain will have preventive functions.
More in detail, the PL first establishes a new system of assumption of losses for the creditors of entities in resolution. The main objective is to ensure that the costs of possible future banking crises are not borne by the taxpayer. To achieve this, the first to assume the losses will be the shareholders and the creditors, up to 8% of the entity's total liabilities. Specifically, the first losses will be assumed by the shareholders, then there would be the holders of subordinated debt and hybrid products; third, debt holders senior. Deposits covered by the Deposit Guarantee Fund are excluded, that is, up to 100,000 euros.
Secondly, a National Resolution Fund is established that will make contributions to the European Single Resolution Fund and will be integrated into it from 2016. This fund will be endowed with resources from all credit institutions, which must be reached in 2024 1% of the amount of guaranteed deposits of all entities. The new Law will allow this fund to cover losses up to an additional amount equivalent to 5% of the liabilities, provided that the shareholders and creditors have assumed initial losses equivalent to at least 8% of the entity's total liabilities.
Preventive planning is another novelty of the Spanish standard. All entities must have a recovery plan and a resolution plan, which will be reviewed at least annually. The restructuring plans will be proposed by the entities themselves to the supervisor for approval. They will contain the set of measures that can be adopted if an entity has solvency problems that it can face on its own. The resolution plans will be prepared and approved by the preventive resolution authority in the event that the entity is unfeasible and has to be resolved to protect the public interest.
The MUR as a resolution authority, both preventive and executive for 90% of the Spanish financial system, will have the collaboration of the FROB and the Bank of Spain. For the remaining 10%, the resolution responsibilities are divided between these last two organizations, in addition to the National Securities Market Commission, depending on whether it is the executive or preventive phase of the resolution.
The FROB will be the National Executive Resolution Authority, responsible for executing the resolution process for problematic banking entities in that 10%. The new FROB will have an independent president. It will have exclusive dedication and will be subject to the incompatibility regime of senior officials of the General State Administration. It will be appointed by the Council of Ministers at the proposal of the Minister of Economy and Competitiveness, among people with sufficient capacity, technical training and experience. The FROB will participate with a vote in the Board of the Single Resolution Mechanism, through its president.
The Banco de España will be the preventive resolution authority for non-significant credit institutions. It will prepare and approve the resolution plans following a mandatory, but not binding, report from the FROB. The Bank of Spain will participate as an observer in the Board of the Single Resolution Mechanism. In turn, the CNMV will be the preventive resolution authority for investment services companies.
This PL finally modifies the regulations of the Deposit Guarantee Fund, to transpose the Community Directive that harmonized the operation of these funds at European level. The main novelty is that the Deposit Guarantee Fund has been divided into two watertight compartments. On the one hand, the deposit guarantee, whose funds will be used for the tasks entrusted by the Directive and will be endowed with 0.8% of the guaranteed deposits, thus ensuring adequate protection for depositors. On the other, the securities guarantee compartment, which assumes the rest of the functions previously attributed to the Deposit Guarantee Fund. For the latter, the current regulation of making annual contributions in the amount of 0.2% of the amount of the guaranteed values is maintained.