Support for credit cooperatives and new bank debt rules

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1. Credit cooperatives are now allowed to join institutional protection schemes, that is, groups of entities that support each other to keep any member from going into liquidation.
2. Transactions between entities belonging to the same institutional protection scheme do not count toward the 50% limit on the total resources a cooperative can use for transactions with third parties.
3. The private guarantee fund of an institutional protection scheme may hold a stake in a cooperative without the usual limits, but it must submit an action plan to the Bank of Spain for its future divestment.
4. Entities belonging to an institutional protection scheme with its own fund may make smaller contributions to the Deposit Guarantee Fund.
5. If a credit entity goes into insolvency proceedings, a new debt category is created: non-preferred ordinary credits, which are paid after other ordinary credits but before subordinated ones. They only qualify if they meet requirements such as a minimum term of one year and a clause stating their lower ranking.
6. Debt instruments used to absorb losses in a resolution are no longer considered non-complex products, so investors get greater protection when buying them.

Who it affects

• Credit cooperatives: They can join institutional protection schemes and get more flexibility on certain transaction and capital limits.
• Credit entities and investment services firms: They must take into account the new non-preferred debt category and how their liabilities are treated in a resolution or insolvency.
• Investors who buy bank debt: Instruments that absorb losses are no longer non-complex products, giving investors more protection.
• Bank of Spain (Banco de España): It must approve the divestment plans of the private guarantee fund and develop, before September 30, 2017, the methods to calculate risk-based contributions to the Deposit Guarantee Fund.

Words worth knowing

Sistema institucional de protección (institutional protection scheme)

A group of credit entities that commit to supporting each other if one of them runs into trouble.

Fondo de Garantía de Depósitos (Deposit Guarantee Fund)

A public fund that returns money to customers if their bank or cooperative fails.

Créditos ordinarios no preferentes (non-preferred ordinary credits)

Debt that, if the entity fails, is paid after other ordinary credits and before subordinated debt.

Concurso (insolvency proceedings)

A court procedure opened when an entity cannot pay its debts and what is left must be divided among creditors.

MREL

The minimum amount of liabilities an entity must hold to absorb losses if its resolution begins, avoiding the use of public money.

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