- The norm culminates the adoption of the commitments derived from the Banking Union in order to prevent future financial crises
- The new system of contributions to the Resolution Fund and the FGD means reinforcing the protection of depositors
The Council of Ministers has approved the Royal Decree (RD) on the Recovery and Resolution of Credit Institutions and Investment Service Companies, which means completing the process of adapting Spanish regulations to the European Banking Union. The RD addresses the procedural and content aspects in the pre-resolution phase of a financial institution to allow early intervention to avoid it and the action protocols in the event that the resolution is reached. The operation of the FROB (Fund for Orderly Bank Restructuring) as the National Resolution Authority and the contributions of the entities to the National Resolution Fund and the Deposit Guarantee Fund are also developed.
The RD approved today completes essential aspects for the application in Spain of the commitments derived from the Banking Union, as an instrument to prevent future financial crises in Europe. The basic objectives are that in the event of a financial institution resolution, the shareholders are the first to face the losses and not the taxpayers and guarantee maximum protection for depositors. Spanish legislation was a pioneer in 2012 regarding the application of these criteria in legislation, which was expanded with Law 11/2015 of June 18, Recovery and Resolution of Credit Institutions and Investment Service Companies, which in turn transposed directive 2014/59 / EU. The RD develops Law 11/2015 in the aspects of procedure and practical application.
Taken together, this new resolution framework means that the entities involved in a resolution have more funds to tackle it thanks to the mutualisation of costs through the Single European Resolution Fund. In addition, greater protection is guaranteed for deposits up to 100,000 euros, which will not be subject to the absorption of losses and which, in the event of a contest, will have a preference of collection.
The RD applies to credit institutions and investment services companies in difficulties and that require early action and, where appropriate, subsequent resolution. Early action is aimed at taking preventive measures to avoid resolution. The RD establishes for this first step the minimum content of the recovery plans and their evaluation by the supervisor; the information requirements and duties applicable to the financial aid agreements of the group to which they belong; and the early action measures that the supervisor may take.
In the preventive phase of early resolution, a series of action protocols are established, including, for example, the minimum content of resolution plans, the evaluation of possible obstacles to resolvability or the rules for decision-making and coordination between authorities of resolution. In the next executive phase, in which the resolution instruments are applied, the procedural obligations are detailed and the use of said instruments is regulated. For example, the operation of the bridge entity that may constitute the FROB and the formation, control mechanisms and operation of asset management companies are regulated.
The norm approved today also develops the operation of the FROB as a new National Resolution Authority and the contributions that entities must make. This will be calculated by the FROB (or by the Single Resolution Mechanism in the case of the entities that participate in said mechanism) taking into account both the size of the entities and their risk profile. The target level to be reached in 2024 of the Resolution Fund is 1% of guaranteed deposits (up to 100,000 euros).
This National Resolution Fund will be integrated (as regards contributions from credit institutions) into a Single European Resolution Fund with the rest of the National Funds of the other Member States of the Euro Area. This single European fund mutualises the cost of resolutions between the countries of the Euro Zone and will be established from January 1, 2016.
The Deposit Guarantee Fund, for its part, from now on will focus on its function of protecting depositors while reducing its role of assistance in the resolution of an entity. Therefore, the contribution system of financial institutions is modified so that they will be calculated with respect to the deposits and guaranteed values (up to 100,000 euros), instead of the admissible ones (that is, all non-exempt deposits and values). Guaranteed deposits are approximately two thirds of the admissible ones. In addition, protection is extended to depositors that were not previously covered. Specifically, deposits from local entities with a budget of less than 500,000 euros per year will have FGD coverage of up to 100,000 euros per entity, like the rest of depositors.
The two compartments created by Law 5/2015 on the recovery and resolution of credit institutions are developed, one for the coverage of deposits and the other for the coverage of securities. The first ones must reach at least the target level of 0.8% of the guaranteed deposits dated July 3, 2024. Those related to the values will be a maximum of 0.3% per year. In addition, the pay period for depositors is reduced from the current twenty business days to seven business days in 2024.