- Entities may create Institutional Protection Mechanisms, a consolidation and self-protection formula
The Council of Ministers has approved a Royal Decree-Law of urgent measures in financial matters whose objective is to reform the legal regime of credit unions. The sector accounts for 6% of the credit system and has great relevance in the financing of smaller economic agents of the agricultural, industrial and professional sector, such as SMEs, freelancers or entrepreneurs. With this rule, processes that contribute to strengthening and increasing the resistance of these entities are favored, in particular, through the constitution of the so-called Institutional Protection Mechanisms (IPM). This completes the cycle of the reforms of the financial system that the Government initiated in 2012 and that have allowed the sector to contribute to the recovery of the Spanish economy.
The norm recognizes credit cooperatives the possibility of constituting an IPM as a mechanism conceived for mutual self-protection and which can be of two types, reinforced or normative. Reinforced IPMs 100% mutualize the benefits and risks and have a leading entity that manages virtually all of the group's decisions (considered a consolidable group). Regulatory IPMs do not have to 100% mutualize the benefits and risks and are characterized by the constitution of a private guarantee fund financed ex ante by the member entities of the group that will be used to address potential needs of the entity's own resources who participate in the MIP.
Incentives are also established to constitute these IPMs. The entities that comprise it have a lower risk profile by increasing their solvency, which will allow reducing the minimum requirements of liabilities capable of absorbing losses for the purpose of an eventual resolution and the contributions that the members of a MIP must make to the Fund of Deposit Guarantee.
Additionally, the RD-Law provides a series of measures to enhance the proper functioning of IPMs. Thus, the operations developed by a cooperative with the other entities that are part of the IPM of which it is a part will not count for the purpose of the limit for active operations with third parties of 50% of the total resources, specified in the Credit Cooperatives Act. That is, the cooperatives of the same IPM may have greater exposures to each other, not limited.
In addition, the private guarantee fund will also have no limits when it comes to investing in the capital of one of the MIP cooperatives. Raising this limitation facilitates the use of the fund when a participating entity needs it. However, an action plan must be submitted to the Bank of Spain for approval in order to guarantee the viability that contains concrete measures aimed at allowing disinvestment in the credit union, in adequate conditions for all the entities that make up the IPM. .
Together with the reform of the Legal Regime of Credit Cooperatives, this RD-Law creates a new category of liabilities that can be issued by all credit institutions: non-preferred ordinary credit or non-preferred senior debt. This is a new category of financial instruments for regulatory purposes in order to facilitate compliance with the minimum requirement of own funds and eligible liabilities by the entities. The idea is that this new instrument has an order of priority (in the case of resolution or insolvency) lower than the rest of ordinary credits but superior to the subordinated debt.
This gives an adequate legal framework to credit institutions that are forced to start issuing such liabilities. Both at the international level and in the European Union, the regulation on banking resolution requires credit institutions and investment services companies to have a number of liabilities that can absorb losses in the event that a resolution process is initiated, the so-called minimum requirement of own funds and eligible liabilities (MREL).
According to the new standard, an ordinary credit can only be considered as non-preferential if it satisfies a series of requirements that guarantee that, in the event of a resolution, the instrument will have the facility to absorb losses: having issued with an equal or higher effective maturity date To one year; have no characteristics of derivative instruments; and that they include a clause that establishes that they have a lower bankruptcy priority over the rest of ordinary credits.
Likewise, the Securities Market Law is modified to give the consideration of complex financial instruments to these debt instruments.
