How troubled Spanish banks get rescued or wound down

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1. The law creates three procedures for troubled credit institutions: early action (when the bank can fix its problems on its own), restructuring (when it needs public support but can pay it back) and resolution (when it is not viable and must be wound down in an orderly way).
2. The procedures aim to protect financial stability, keep essential banking services running, protect guaranteed depositors and use as little public money as possible.
3. Shareholders bear losses first, followed by subordinated creditors. No creditor may lose more than it would have lost if the bank were liquidated in an insolvency proceeding.
4. Under early action, the Bank of Spain can require an action plan, demand the removal of directors and even provisionally replace the management body if the bank fails solvency or liquidity requirements but can recover on its own.
5. In resolution, the Bank of Spain replaces the bank's directors and appoints the FROBFROB Fondo de Reestructuración Ordenada Bancaria (Fund for Orderly Bank Restructuring), the public body that manages bank rescues and orderly wind-downs. as administrator. The FROB draws up a plan that may include selling the business, transferring assets to a bridge bank or to an asset management company.
6. The FROB can force a bank to transfer troubled assets to an asset management company, so they leave the bank's balance sheet and are managed independently.
7. The FROB can impose management actions on a bank's preferred shares and subordinated debt when it is restructured or resolved, so that investors bear part of the costs before taxpayers do.
8. The FROB is reformed: private sector participation on its governing board is removed to avoid conflicts of interest, and a Director General is created with executive powers. The FROB reports to the Congress of Deputies every three months.

Who it affects

• Customers and depositors of troubled banks: Continuity of banking services and deposits guaranteed by the Deposit Guarantee Fund are protected.
• Shareholders and investors in preferred shares and subordinated debt: They are the first to bear losses when a bank is restructured or resolved, and their securities can be exchanged, bought back or modified by decision of the FROB.
• Directors and executives of troubled banks: They can be removed or replaced by the Bank of Spain or the FROB during the procedures.
• Taxpayers: The law seeks to minimize the use of public money and to make shareholders and creditors pay before the State does.

Words worth knowing

Entidad de crédito

Credit institution: a bank, savings bank or credit union that takes money from the public and grants loans.

FROB

Fondo de Reestructuración Ordenada Bancaria (Fund for Orderly Bank Restructuring), the public body that manages bank rescues and orderly wind-downs.

Resolución

Resolution: the procedure to wind down a non-viable bank in an orderly way, avoiding the chaos of a sudden liquidation.

Banco puente

Bridge bank: a temporary entity created to hold the assets and liabilities of a bank under resolution until they are sold.

Acreedores subordinados

Subordinated creditors: creditors who, if the bank fails, are paid after all others; for example, holders of preferred shares or subordinated debt.

It summarizes the law as published in the BOE. It is written by artificial intelligence and may contain mistakes: the official text is what counts. Read the official text · How we make summaries