Rules to clean up and wind down troubled banks

Automatic summary, not yet reviewed

1. The rule creates three types of processes for banks in trouble: early intervention (mild problems), restructuring (they need public money but can pay it back) and resolution (unviable banks that must be wound down in an orderly way).
2. Shareholders are the first to bear losses, followed by subordinated creditors. No creditor will lose more than they would if the bank were liquidated in an insolvency proceeding.
3. Under early intervention, the Bank of Spain requires weak banks to submit an action plan and can replace their board members if the situation worsens.
4. The FROBFROB Fondo de Reestructuración Ordenada Bancaria, the public body that manages bank bailouts and orderly wind-downs in Spain. manages bank restructuring and resolution. It can sell the business to a third party, transfer assets to a bridge bank or to an asset management company, and provide financial support.
5. The FROB can force a bank to transfer its problem assets to an asset management company, so they leave the bank's balance sheet and are managed separately.
6. The FROB can impose measures on preferred shares and subordinated debt, such as exchanges or buybacks, so private investors bear part of the cost before taxpayers do.
7. The governing body of the FROB is restructured: private sector participation through the Deposit Guarantee Fund is removed, and a Director General with executive powers is created.
8. Credit institutions must hold core capital of 9% of their risk-weighted exposures starting January 1, 2013, instead of the previous requirements of 8% and 10%.

Who it affects

• Bank customers and savers: The processes aim to protect their guaranteed deposits and the continuity of banking services.
• Shareholders and holders of preferred shares or subordinated debt: Their securities can be exchanged, bought back or modified by decision of the FROB, and they bear losses before taxpayers.
• Banks with solvency problems: They are subject to action plans, restructuring or resolution, with possible replacement of their board.
• Taxpayers: The rule seeks to minimize the use of public money in bank bailouts.

Words worth knowing

FROB

Fondo de Reestructuración Ordenada Bancaria, the public body that manages bank bailouts and orderly wind-downs in Spain.

Resolución (resolution)

A process to wind down an unviable bank in an orderly way, avoiding a chaotic liquidation.

Banco puente (bridge bank)

A bank created or owned by the FROB to temporarily hold the assets and liabilities of a bank under resolution until they are sold.

Participaciones preferentes (preferred shares)

Financial products halfway between shares and debt, which can be affected by FROB measures.

Capital principal (core capital)

A bank's basic own funds used to absorb losses; the rule requires a minimum of 9%.

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