- The rule 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 strengthening protection for depositors
The Council of Ministers has approved the Royal Decree (RD) of Recovery and Resolution of Credit Institutions and Investment Services Companies that involves completing the process of adaptation to the European Banking Union of Spanish regulations. 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 (Bank Ordered Restructuring Fund) as a National Resolution Authority and the contributions of the entities to the National Resolution Fund and the Deposit Guarantee Fund are also developed.
With the RD approved today, essential aspects for the application in Spain of the commitments derived from the Banking Union are completed, as an instrument to prevent future financial crises in Europe. The basic objectives are that in case of resolution of a financial entity, the shareholders are the first to face the losses and not the taxpayers and guarantee maximum protection to the depositors. The Spanish regulations pioneered in 2012 regarding the application of these criteria in the legislation, which was extended with Law 11/2015 of June 18 on Recovery and Resolution of Credit Entities and Investment Services Companies that in turn transposed Directive 2014/59 / EU. The RD develops Law 11/2015 in the aspects of procedure and practical application.
Together, this new resolution framework means that the entities involved in a resolution have more funds to address it thanks to the mutualisation of costs through the Single European Resolution Fund. In addition, it ensures greater protection of deposits up to 100,000 euros, which will not be subject to the absorption of losses and that, in the event of a contest, will have a collection preference.
The RD applies to credit institutions and investment services companies in difficulty and that require early action and, where appropriate, a subsequent resolution. Early action is aimed at adopting preventive measures to avoid resolution. The RD sets 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 can take.
In the preventive phase of early resolution, a series of action protocols are established that include, for example, the minimum content of the resolution plans, the evaluation of possible obstacles to resolvability or the decision-making and coordination rules between resolution. In the next executive phase, in which the resolution instruments are applied, the procedural obligations are detailed and the use of these instruments is regulated. For example, the operation of the bridge entity that may constitute the FROB and the training, 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 the guaranteed deposits (up to 100,000 euros).
This National Resolution Fund will be integrated (as far as the contributions of credit institutions are concerned) into a Single European Resolution Fund with the rest of the National Funds of the other Member States of the Euro Zone. This single European fund mutualizes the cost of resolutions between the countries of the Euro Zone and will be established as of January 1, 2016.
The Deposit Guarantee Fund, for its part, will now focus on its depository protection function while reducing its role in assisting in the resolution of an entity. The system of contributions of the financial entities is therefore 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 deposits and non-exempt values). Guaranteed deposits are approximately two thirds of the admissible. In addition, protection is extended to depositors that were not previously covered. Specifically, the deposits of local entities with a budget of less than 500,000 euros per year will have coverage of the FGD up to 100,000 euros per entity, like the rest of depositors.
The two compartments created by Law 5/2015 of recovery and resolution of credit institutions are developed, one for the coverage of deposits and the other for the coverage of securities. The former must reach at least the target level of 0.8% of the guaranteed deposits dated July 3, 2024. Those related to the securities will be a maximum of 0.3% per year. In addition, the payment period is reduced to depositors from the current twenty business days to seven business days in 2024.
