The Council of Ministers has approved the referral to the General Courts 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 . It is about establishing 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 is the most ambitious integration project since the adoption of the euro and is based on two pillars, the Single Supervisory Mechanism (MUS), already in force, and the Single Resolution Mechanism (MUR) that entails the creation of the Fund European Resolution, endowed with 55,000 million euros, of which 5,300 will be contributed by the Spanish banks.
The norm approved today has passed the process of the State Council 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 that will be provided annually with the resources of the credit institutions in order to reach at least 1% of the guaranteed deposits to be covered in 2024. The entities, by on their part, they should 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 establishes in the first place 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 banking crises in the future are not borne by the taxpayer. To achieve this, the first to assume the losses will be the shareholders and creditors, until reaching 8% of the total liabilities of the entity. Specifically, the first losses will be assumed by shareholders, then there would be holders of subordinated debt and hybrid products; thirdly, 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 Single European Resolution Fund and that will be integrated into it as of 2016. This fund will be provided 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 a first loss 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 all the measures that can be adopted if an entity presents solvency problems that it can deal with by its own means. The resolution plans will be prepared and approved by the preventive resolution authority in case 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 be supported by the FROB and the Bank of Spain. For the remaining 10%, the resolution responsibilities are shared between these last two agencies, 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 the execution of the resolution process of problematic banks in that 10%. The new FROB will have an independent president. It will have exclusive dedication and will be subject to the regime of incompatibilities of high positions 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 preparation and experience. The FROB will participate by vote in the Board of the Single Resolution Mechanism, through its president.
The Bank of Spain will be the preventive resolution authority for non-significant credit institutions. 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 rules 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 guarantee of deposits, whose funds will be allocated to the tasks entrusted by the Directive and will be provided with 0.8% of the guaranteed deposits, thus ensuring adequate protection of 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 amounting to 0.2% of the amount of the guaranteed securities is maintained.
