Forcing Spanish banks to clean up their real estate assets

Automatic summary, not yet reviewed

1. Banks must set aside extra provisions to cover losses on their real estate assets: land, developments and repossessed properties. They must also hold additional top-quality capital against those doubtful assets.
2. Lenders must meet these requirements before December 31, 2012 and submit a plan to the Bank of Spain before March 31, 2012, which approves it within fifteen business days. Breaking the rules is a serious or very serious offense.
3. Banks that merge during 2012 get twelve extra months to meet the new requirements. To qualify, the merger must meet conditions: minimum size, better corporate governance, more credit to households and small businesses, a plan to sell real estate assets, and viability.
4. The FROBFROB Fondo de Reestructuración Ordenada Bancaria: a public fund that financially supports troubled Spanish banks., the public bank rescue fund, is changed. Its support is limited to buying shares, the deadline to sell those stakes drops from five to three years, and it can also buy shares-convertible bonds.
5. Savings banks that operate through a bank simplify their governing bodies and procedures. If they reduce their stake below 25 percent of voting rights, they lose their status as credit institutions and become special foundations.
6. Pay is capped at rescued institutions: no variable pay in 2012 for those majority-owned by the FROB, and limits from €50,000 to €600,000 depending on the case. In addition, the FROB's funding increases by €6 billion.

Who it affects

• Banks and credit institutions holding real estate assets: They must make provisions and add capital, with 2012 deadlines and penalties if they fail.
• Institutions merging in 2012: They can request twelve extra months to comply, in exchange for lending and asset sale commitments.
• Savings banks operating indirectly through a bank: They simplify their organization and may become special foundations if they lose their stake.
• Directors and executives of rescued institutions: They face pay caps and a ban on variable pay in 2012.
• Holders of preferential shares (participaciones preferentes): Issuing institutions may ask to defer payment of their returns by up to twelve months.

Words worth knowing

FROB

Fondo de Reestructuración Ordenada Bancaria: a public fund that financially supports troubled Spanish banks.

Saneamiento de balances

Recognizing and covering the losses on a bank's books so they show its true situation.

Cobertura

Money a bank sets aside to absorb possible losses on a loan or asset.

Capital principal

A bank's highest-quality capital, the kind that best absorbs losses.

Participaciones preferentes

Preferential shares: securities that pay a fixed return but are neither shares nor deposits.

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