How failing banks are rescued or closed without public money

Automatic summary, not yet reviewed

1. The law regulates early intervention and resolution of credit institutions and investment firms in Spain, aiming to protect financial stability while minimizing the use of public money.
2. All institutions must prepare a recovery plan explaining how to restore their financial position if it deteriorates, and authorities prepare resolution plans for each institution, assuming no public financial support.
3. If an institution becomes non-viable, the FROBFROB Fondo de Reestructuración Ordenada Bancaria, the public body that leads the executive phase of resolving institutions. can open a resolution process, replace its management, and apply tools such as selling the business, creating a bridge institution, or an asset management company.
4. Internal recapitalization (bail-in) allows losses to be imposed on shareholders and creditors of the institution, not only on subordinated ones. Guaranteed deposits are excluded from these losses.
5. A National Resolution Fund is created, financed by the financial industry itself, which must reach at least 1% of guaranteed deposits and will pay the costs of resolutions.
6. If a bank goes into insolvency proceedings, guaranteed deposits and deposits of individuals and small and medium-sized businesses receive preferential treatment in the payment order.
7. The law establishes a sanctioning regime with fines of up to 10% of annual turnover for institutions and up to €5 million for executives for very serious infringements.
8. The FROB is the executive resolution authority, led by a Chair with a non-renewable five-year term, who must appear before the Congress of Deputies at least twice a year.

Who it affects

• Bank customers, especially depositors: Their guaranteed deposits are protected and receive preferential payment if the bank enters resolution or insolvency.
• Shareholders and creditors of banks: They are the first to absorb losses if their institution is resolved.
• Banks and investment firms: They must prepare recovery plans, contribute to the National Resolution Fund, and meet resolvability requirements.
• Executives and directors of these institutions: They can be fined, suspended, or banned from office for breaching the law.
• Taxpayers: The law seeks to ensure public money is not used to bail out institutions.

Words worth knowing

Resolución (resolution)

A special administrative process to restructure or wind down a failing bank in an orderly way, instead of using ordinary insolvency proceedings.

FROB

Fondo de Reestructuración Ordenada Bancaria, the public body that leads the executive phase of resolving institutions.

Recapitalización interna (internal recapitalization)

A mechanism known as bail-in that reduces the institution's debt or converts it into shares so shareholders and creditors absorb the losses.

Entidad puente (bridge institution)

A temporary company that receives the healthy part of a bank under resolution while a buyer is sought.

Depósitos garantizados (guaranteed deposits)

The money customers hold in a bank up to the level covered by the Deposit Guarantee Fund.

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