EN ECB -PUBLIC 
 
 
OPINION OF THE EUROPEAN CENTRAL BANK  
of 9 January 201 3 
on early intervention, restructuring and resolution of credit institutions  
(CON/20 13/3) 
 
Introduction and legal basis  
On 21 August 2012, the European Central Bank (ECB) received a request from the Unde r-Secretary of 
the Spanish Ministry of Econom ic Affairs  and Competitiveness for an opinion on a draft Royal decree -
law (hereinafter the ‘ Royal Decree- Law’) that establishes a comprehensive regime for the restructuring 
and resolution of  credit institutions (hereinafter  ‘CIs’). 
The Royal Decree -Law was approved on 31  August 2012 by the Council of Ministers and was then 
submitted to the Parliament t o be processed  as an ordinary law , allow ing amendment prior to its final 
approval by the Parliament . 
The ECB’s co mpetence to deliver an opinion is based on Articles 127(4) and 282(5) of the Treaty on the 
Functioning of the European Union and on the third and sixth indents of Article  2(1) of Council 
Decision  98/415/EC of 29 June 1998 on the consultation of the Europea n Central Bank by national 
authorities regarding draft legislative provisions1, as the Royal Decree- Law relates to the Banco de 
España and to rules applicable to financial institutions  insofar as they  materially influence the stability of 
financial institu tions and markets. In accordance with the first sentence of Article 17.5 of the Rules of 
Procedure of the European Central Bank, the Governing Council has adopted this opinion.  
 
1. Purpose and contents of the Royal  Decree -Law  
The Royal Decree- Law establish es an innovative and comprehensive framework for early intervention, 
restructuring and resolution processes for CI s. It also  modifies the legal regime for the Fund for Orderly 
Bank Restructuring (FROB) and the conduct of management activities of hybrid capit al instruments and 
subordinated debt . 
The main  objectives of the Royal Decree- Law are: (a) to ensure the continuity of s ystematically important  
activities of CI s, as well as systems for payment, set -off and liquidation; (b)  to avoid harm  to the stability 
of the financial system, preventing contagion to the financial system  as a whole; and (c) to minimis e 
public financial support . 
                                                 
1  OJ L 189, 3.7.1998, p. 42.  
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2 Intervention is based , inter alia , on the following principles:  
(a)  shareholders, stakeholders or partners will first bear losses;  
(b)  subordinated creditors will absorb losses after shareholders, in accordance with  the hierarchy of 
creditors established under Law 22/2003 of 9 July on insolvency (hereinafter ‘Law 22/2003’)2;  
(c)  creditors of the same rank will be treated equally ; 
(d)  no creditor will bear losses greater than those it would have borne if the entity ha d been liquidated 
as part of an insolvency procedure. For the purposes of ensuring an adequate distribution of the 
restructuring or resolution costs, the FROB  is not included a s a shareholder, stakeholder, partner or 
creditor. 
All interventions will be based on a valuation of the CI or of its assets and liabilities by independent 
experts . In the valuation process, the actual or potential financial support received or to be received by the 
CI will be disregarded . 
1.1 Early intervention measures 
Early intervention measures apply whe re a CI cannot meet requirements on solvency,  liquidity, 
organisational structure or internal control, but is in a position to be able to com ply again  with 
requirements without support. Early intervention measures are considered  to be  supervisory measures, 
and therefore  fall under the  responsibility of the Banco de España. Whe re a CI cannot meet the above  
requirements, it must present to the Ba nco de España , or the Banco de  España may request , an action plan 
describing the measures that it intends to adopt to guarantee its long -term viability without public support. 
The Banco de España must  then approve the action plan and may require amendments . Among the early 
intervention measures that the Banco de España may adopt , such as calling a shareholders meeting, or 
requiring the renegotiation of debts , are recapital isation measures that must be approved by the FROB . 
These measures relate to  shares or  convertible securities repayable or convertible within two years. If the 
measures are not sufficient , the Banco de España may order  the replacement  of the B oard of D irectors of 
the CI . 
The CI must  report to the Banco de España every three months on measur es taken u nder the action plan. 
If the CI  recovers from its ‘ deterioration ’ situation , the Banco de España will conclude the process of 
early intervention. However, t he Banco de España will  move to  open a restructuring or resolution 
proceeding  in the follo wing situations : (a) where  a CI is unable to  recover from its ‘deterioration ’ 
situation ; (b) where no action plan is presented ; (c) where the CI is not viable or does not comply with the 
early intervention measures.  
1.2 Restructuring of a CI  
A CI will be  restructur ed in the following situations:  (a) where  it requires public funds to guarantee its 
viability ; (b) where objective criteria indicate that such support  from public funds  will be repaid or 
recovered within  a fixed  period;  (c) in the absence of such objective criteria , whe re the orderly resolution 
                                                 
2  Ley Concursal , BOE 164, 10.7.2003.  
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3 of the institution would have seriously damaging effects on the stability of the financial system as a 
whole , as determined by the Banco de España (i.e. whe re the CI  is systemic in  nature ). 
The CI must prese nt a restructuring plan to ensure its long- term viability  and this  plan must be approved 
by the FROB and ultimately by the Banco de España. The plan must contain management actions for 
hybrid capital instruments and subordinated debt , as well as the instru ments for restructuring. The CIs 
may use financial support measures and may transfer assets to an asset management company  (AMC) .  
Provided that the conditions for resolution are met, the Banco de España may commence resolution in the following situations:  (a) where  the CI is unable to recover from its ‘ deterioration ’ situation ; (b) where  
financial support has not been  repaid within the deadline ; or (c) where  there are  implications for the 
stability of the system . 
1.3 Orderly resolution  
Orderly resolution w ill be implemented where: (a)  a bank is non- viable or is expected to  become  so in the 
future; and ( b) for reasons of public interest, it is necessary or advisable to proceed to i ts orderly 
resolution.  
A resolution will also be applied in the following circ umstances: (a) where a CI subject to a restructuring 
process has not presented a  restructuring plan;  (b) where  a plan which has been presented is inadequate ; 
or (c) where  a CI fails to  apply the restructuring measures.  
For the purposes of resolution, a CI  will be considered no n-viable if : (a) it significantly  fails to meet 
solvency  requirements; ( b) its liabilities exceed  its assets or it is reasonably foreseeable that they will  do 
so in the near future; ( c) it cannot meet its obligations promptly or it is foreseeable that it will not be able 
to do so  in the near future; and ( d) it is not reasonably foreseeable that the CI in question will be able to 
alter its situation within a reasonable period whether  by its own funds , by going to the markets or by a 
restructuring. 
The Banco de España will inform the Ministry of Econom ic Affairs and the FROB  about  any resolution 
process it launches, and will replace the Board of Directors of the relevant CI with persons appointed by  
the FROB.  Within two months t he FROB mus t present a resolution plan setting out: (a ) the conditions 
justify ing the resolution process; ( b) the resolution tools to be used; ( c) the financial support measures  
provided by the Deposit Guarantee Fund  (DGF) ; (d) an economic assessment of the relevant  CI; (e) any 
actions for the  management of hybrid capital instruments and subordinated debt to be performed; and 
(f) the time  frame  for the execution of the plan. The plan must be approved by the Banco de España.  
1.4  Resolution tools  
(a) Sale of business o f the CI : this tool allows the FROB to sell shares, assets or liabilities of the CI  
without the shareholders’ consent. The sale will take place under market conditions, in a 
competitive process and will exclude  costs incurred by the FROB.  
(b) Bridge bank : the FROB may transfer all or part of the assets and liabilities of a CI  to a bridge bank  
participated in by the FROB. The bridge bank will be subject to supervisory rules, and will exist for 
a maximum duration of five years. When all assets and liabilities  of the bridge bank have been 
transferred to another institution, or  if the FROB no longer participate s, the bridge bank will lose its 
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4 banking licenc e and will be liquidated through an insolvency procedure  within one year from the 
FROB ’s divestment . 
(c) Financial support measures : the measures described under 1.5 below  shall  be granted , where 
necessary , in order  to facilitate the implementation of any of the other resolution tools.  
(d) AMC : this resolution tool is described under paragraph 5 below.  
The to ols under  (a) to (c) above  can be accelerated  in urgent cases , with the prior approval of the Banco 
de Espa ña. To th is end, the FROB can use an urgent valuation system, which dispenses with independent 
expert  reports.  
1.5 Financial support  measures 
The following f inancial support measures may be provided by the FROB : (a) the issuing of guarantees; 
(b) the granting loans or  lines of  credit ; (c) the acquisition of assets or liabilities;  or (d) recapitalisation 
using either (i) ordinary shares or share capital contributions; or (ii) instruments convertible into ordinary 
shares or share capital contributions (CoCos), which will be repaid under  market conditions, or converted 
within five  years or earlier , if the FROB considers repurchase within the specified period  improbable .  
The shares or CoCos provided by the FROB will be t reated as basic equity and principal capital. The 
subscription or acquisition price of those shares or CoCos may be paid in cash or through the transfer of 
securities representing public debt,  issued by the European Financial Stability Facility or the European 
Stability Mechanism, or issued by the FROB itself.  
1.6 AMCs  
The FROB may oblige a CI to transfer to an AMC particular categories  of toxic  or potentially harmful  
assets, so that such asset s can be excluded from the institution’s balance sheet and can be independently 
disposed of . The AMC will be a limited liability company and may issue bonds  and debt securities. The 
transfer of assets to the AMC will not require th ird party  consent, and wi ll be based on a valuation 
pursuant to criteria to  be established by  a regulation.  
1.7 Management of hybrid capital instruments and subordinated debt  
The Royal Decree- Law allows liability management in the context of restructuring and resolution o f 
hybrid capital instruments and subordinated debt to ensure a proper distribution of the costs for the 
restructuring or resolution of the institution. The Royal Decree- Law establish es a two step process.  
Step one  represents a voluntary offer conducted with the hol ders of hybrid instruments and subordinated 
debt. This voluntary offer can be made by way of: (a) exchange offers for other capital instruments; 
(b) repurchase offers; (c) reduction of nominal value; or (d) advance amortisation at a different value.  
Step two represents a coercive regime under which the FROB will be authorised to enforce mandatory 
burden sharing . The coercive regime can be  conducted by way of : (a) deferment, suspension, elimination 
or modification of certain rights, obligations, terms and c onditions of the issues ; or (b) repurchase of the 
securities at a price determined by the FROB. The Royal Decree- Law contains appropriate safeguards, a 
no worse -off principle and allows for the ex- post judicial review of the liability management exercise. To 
evaluate the management activity, the FROB must take into account criteria such as , inter alia,  the 
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5 proportion represented by the hybrid capital and subordinated debt with respect to the  CI’s total assets 
received, the amount of public aid received by t he CI, the market value of subordinated instruments or the 
capacity of the CI to attract market resources.  
The subordinated debt and hybrid capital subscribed by the FROB will be exempted from the 
management activities.  
1.8 FROB 
1.8.1  The FROB will implem ent the restructuring and orderly resolution processes. Under the Royal 
Decree- Law its powers are enhanced  and its legal structure is  modified. It will be financed by the 
State general budget, although the Royal Decree- Law does not provide for a specific amount . 
The FROB’s Board will be composed of nine members, four of which are appointed by the Banco 
de Espa ña. The remaining five will be  high-ranking officials from the Ministry of Econom ic 
Affairs  and the Ministry of Finance. In the absence of a conflict of interest, o bservers may attend 
board meetings. 
The FROB is subject to parliamentary oversight  on a quarterly basis , and must inform the 
Parliament whenever it implements a restructuring or resolution plan. The FROB is also subject to 
secrecy obligation s, but must cooperate with other national and international authorities involved in 
the supervision, restructuring or resolution of CI s. 
1.8.2  The FROB will enjoy commercial and administrative powers. The FROB ’s use of resolution 
powers will not be subject to any further author isation, and its decisions  will enter into force 
immediately . The FROB wi ll make public the implementation of resolution and restructuring 
measures. It  may also suspend  certain payment obligations or guarantees derived from contracts.  
The FROB ’s decisions m ay be challenged before the commercial courts or the Administrative 
Branch of the National Audience, depending on their nature . The Banco de España ’s decisions 
confirming the restructuring  or resolution plans proposed by the FROB may also be challenged 
before  the Administrative Branch of the National Audience.  
1.9 Other measures  
The Royal Decree- Law contains other miscellaneous provisions , including  on: 
the legal structure for the AMC, wi th the details to be established by  a regulatio n; 
the trading of preferred shares, convertible debt securities and subordinated financing , whereby a t least 
one half of t hese securities must be ad dressed to professional investors and a minimum investment of 
EUR 100 000 will be required;  and 
the requirem ents of core capital for CIs are amended to a general requirement of 9% f rom January 2013. 
The definition of core capital is amended and harmoni sed with the definition provided by the European 
Banking Authority . 
 
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6 2. General observations  
2.1 The Royal Decre e-Law is a complex and innovative piece of legislation  adopted in the context of 
the Memorandum of Understanding on Financial Sector Policy Conditionality for Spain3 
(hereinafter the ‘MoU’) , and in the context of the on- going restructuring and recapitalisa tion of the 
Spanish banking sector. The Royal Decree- Law will strengthen the framework for early 
intervention, restructuring  and resolution measures, as well as the Subordinated Liability Exercises  
(SLEs)  over holders of hybrid capital instruments and subordinated debt4. 
2.2 The ECB welcomes the introduction of  a comprehensive bank resolution framework  which aims at  
safeguard ing the financial soundness of CI s, the interests  of guaranteed depositors and the stability 
of the financial system . This opinion  suggests some technical  improv ements to  the overall good 
quality of the Royal Decree -Law. 
2.3 The ECB understands that the enactment  of a legal framework on bank recovery and resolution is 
somewhat complicated due to  the absence of a stable legislative propos al at U nion level , and 
invites the consulting authority to review the content of the law in the light of the future Union 
regulatory framework on bank recovery and resolution, in particular with regard to resolution tools 
and the powers of resolution authorities,  and of the forthcoming recast of Directive 94/19/EC of the 
European Parliament and of the Council of 30 May 1994 on deposit -guarantee schemes5. The same 
applies  with respect to the development of a single supervisory authority in the coming months. 
 
3. Role of the Banco de España  
The Banco de España plays an extensive role in intervention for CI s under  the Royal Decree- Law. It will 
adopt and implement  early interventions. It will also determin e the systemic na ture of a CI , thus allowing  
for its rest ructuring where there are financial stability  implications . It may trigger the resolution process 
and may be  involved  in the use of some resolution tools, such as the AMC, where it fixes the value 
attributed to the assets for transfer purposes in accordance with the expert valuation report. The ECB understands that the tasks allocated to the Banco de España under the Royal Decree- Law do not 
interfere with the performance of it s Eurosystem -related tasks provided for by the Treaty and do not 
prejudice the financial means necessary for carrying out the Banco de España’s Eurosystem -related 
tasks
6. Any involvement of the Banco de España and of the members of its decision -making bodies in 
measures to strengthen financial stability must be compatible with the Treat y and , consequently , with the 
Banco de España’s institutional and financial independence, as well as with the personal independence of 
the members of its decision -making bodies safeguard ing the proper performance of their tasks under the 
Treaty and the Statute of the European System of Central Banks and of the European Central Bank7. 
                                                 
3  Available on the European Commission’s website at http://ec.europa. eu. 
4  See the Spanish Memorandum of Understanding on Financial -Sector Policy Conditionality of 20 July 2012.  
5  OJ L 135, 31.5.1994, p.  5. 
6  The ECB’s Convergence Report May 2010, p. 22.  
7  See paragraph 3.1.4 of Opinion CON/2009/93.  
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7 The ECB welcomes the tasks allocated to the Banco de España under the Royal Decree- Law which are 
broadly consistent with i ts financial stability role.  
Pursuant  to Article 51(3)  of the Royal Decree- Law, the FROB ’s cash services will be provided by the 
Banco de España, with whom it will enter into a necessary agreement to this effect. The ECB understands 
that the Banco de España will hold FROB deposits. Such provisions do not rais e concerns about 
compliance with the monetary financing prohibition as long as the services provided by the Banco de 
España do not entail the extension of credit, including overnight overdrafts. In particular, it is essential  
that the remuneration of such deposits reflects market parameters and it is also important to link the 
remuneration rate of the deposits to their maturity8. 
 
4. Priority claim in respect of covered deposits  
With respect to  the principles of restructuring and orderly resolution of CI s under Article 4 of the Royal 
Decree- Law, the Spanish authorities should consider includ ing a preference rule for guaranteed deposits. 
Currently, six Member States -  including Bulgaria9, Greece10, Latvia11, Hungary12, Portugal13 and 
Romania14 - have granted prior ity ranking to claims that the Deposit Guarantee Scheme (DGS) has 
acquired by subrogation after having paid out the amounts corresponding to covered deposits, thus further contributing to ensuring that sufficient funding is always available to the DGS. 
Views on the impact of granting preferential ranking to depositors are highly divergent, as it is believed 
that such preferential ranking may have an impact on the funding costs available to banks and that greater 
efforts will be made by other creditors to se cure their claims. On the other hand, this impact would be 
somewhat mitigated to the extent that priority claims extend to guaranteed deposits only. Furthermore, a legal regime that establishes priority ranking of guaranteed depositors should facilitate th e use of 
resolution measures provided for in the proposed directive (e.g., sale of business tool, bridge institution tool). From a financial stability perspective, the priority claim in respect of the covered deposits is also 
                                                 
8  See the ECB’s Co nvergence Report May 2012, pp. 30-31.  
9 Preferred creditor status is established for DGS by Article 94(1) of the Law on bank insolvency ( Darjaven vestnik No 92, 
27.9.2002).  
10 Depositor preferred creditor status is established by Article 4(16) of Law 3746/2 009 transposing Directive 2005/14/EC 
on insurance against civil liability in respect of the use of motor vehicles and Directive 2005/68/EC on reinsurance and 
other provisions (FEK A 27, 16.2.2009). Article 13a(4) establishes the DGS’ status.   
11  Law of 5 O ctober 1995 on credit institutions (LV 163(446), 24.10.1995). Article 192(1) introduced preferential ranking 
for guaranteed depositors on 21 May 1998.  
12 Law CXII of 1996 on credit institutions and financial undertakings ( Magyar Közlöny  1996/109, 12.12.1996 ), and more 
specifically Chapter XV of the Law on the details of the deposit guarantee scheme . The preferential status of all, and not 
only guaranteed, deposit claims is established by Article 183(1) of the Law.  
13 See Article 166 -A of consolidated version of Decree- Law No 298/92 of 31 December on the legal framework of credit 
institutions and financial undertakings ( D.R. No 30, I, 10.2.2012) . 
14 Government Ordinance No 10/2004 on the proceedings for judicial reorganisation and bankruptcy of credit instituti ons, 
as further amended and supplemented, in particular by Article 38, gives a preferential right, after expenses related to the 
bankruptcy proceedings have been settled to claims arising from guaranteed deposits, including the claims of the DGS 
arising fr om repayments to the guaranteed depositors ( Monitorul Oficial al României, Part One, No 84, 30.1.2004).  
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8 supported as it reduces the ri sks of bank runs, potential losses of the insured depositors in a liquidation 
phase, as well as the excessive depletion of the DGS15. 
 
5. AMC 
The principles, structure, governance and other fundamental aspects of the AMC will be further 
developed in Spanish  legislation over  the coming months. The ECB remind s the Spanish authorities that 
the obligation to consult the ECB concerns any provisions ‘which, once they become legally binding and 
of general applicability in the territory of a Member State, lay down r ules for an indefinite number of 
cases and are addressed to an indefinite number of natural or legal persons’ , and includes secondary 
legislation , such as regulation s. The ECB expects to be consulted on the further legislation concerning  the 
regulation of the AMC at an appropriate stage in the legislative process. This implies that the consultation 
should take place at a point in the process which affords the ECB sufficient time to examine the draft 
legislative provisions, and which also enables the nationa l authorities to take the ECB’s opinion into 
consideration before the provisions are adopted.  
 
6. Restructuring of systemic institutions  
Article 13 of t he Royal Decree- Law allows the restructuring of a CI , using public financial support, where 
objective el ements do not exist a llowi ng a reasonabl e predict ion that this support will be repaid or 
recovered. Under Article 13, such a restructuring is only permissible where  the CI’s resolution would 
have seriously damaging effects on the stability of the financial  system as a whole,  in order t o minimis e 
the use of public funds.  
The ECB is of the view that the restructuring of a non- viable entity as a going concern (‘open bank 
scenario’) instead of resolving it as a gone concern (‘closed bank scenario’) should only be considered 
under exceptional circumstances, where the orderly resolution of a CI  would have seriously damaging 
effects on the stability of the financial system, with heightened risk of contagion across borders16.  
It is important to note that the proposa l for a n EU  directive on bank recovery and resolution17 only 
provides for the recapitalisation of a non- viable entity via ‘going -concern bail -in’ within resolution18. 
This mean s that the restructuring of the entity  is embedded in the resolution  regime, allow ing other 
resolution tools  to also be used  and the application of resolution safeguards.  
In line with the propos ed directive , the Royal Decree- Law should make clear that prior to any use of 
public funds for restructuring a non- viable entity,  (a) existing s hares/equity instruments are cancelled  on a 
                                                 
15  ECB Opinion CON/ 2012 /99, paragraph 8.2.  
16  ECB Opinion CON/2012/99, paragraphs  1 and 6.2 .  
17  Commission proposal for a directive of the European Par liament and of the Council establishing a framework for the 
recovery and resolution of credit institutions and investment firms and amending Council Directives 77/91/EEC and 
82/891/EC, Directives 2001/24/EC, 2002/47/EC, 2004/25/EC, 2005/56/EC, 2007/36/EC a nd 2011/35/EC and 
Regulation  (EU) No 1093/2010, COM (2012) 280 final.  
18  Article 37(2)(a).  
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9 mandatory basis , (b) all available means of creditor participation under the Spanish resolution framework 
are exhausted , and (c) appropriate measures are taken to address moral hazard, such as the replacement of 
an entity’s  management . 
 
7. Mandatory recapitali sation  
The ECB welcomes the fact  that the Royal Decree- Law entrusts the FROB with administrative capacities 
which allow for an effective intervention in a CI with the aim of preserving financial stability. Ho wever, 
as far as concerns mandatory recapitalisation  under  Article 62(d)  of the Royal Decree- Law, any 
overrid ing of shareholders’ rights would require careful consideration in light of shareholders ’ rights 
under U nion directives. In this respect, the ECB s uggests limiting  such powers to the resolution of CIs 
and restructuring of systemic institutions.  
Similar issues need to be considered with respect to the enforceability of close -out netting and financial 
collateral arrangements under U nion directives.  
 
8.  Use of government bonds to recapitalise CI s 
Pursuant to Article 30(2), first sentence , of the Royal Decree- Law, the FROB may fund recapitalisation of 
CIs by cash or alternatively through the transfer of securities representing public debt or securities i ssued 
by the FROB. As stated in previous ECB opinions19, where a recapitalisation of a CI  to restore its 
solvency takes place by way of direct placement of State- issued debt instruments, the subsequent use of 
such bonds or financial instruments as collatera l in central bank liquidity operations would raise monetary 
financing concerns in the absence of any alternative market -based funding sources for such State- issued 
debt instruments. The same concerns would arise if the securities issued by the FROB20 are used for a 
bank recapitalisation . 
 
9.  Removal of licence of the ‘ rump ’ entity following the transfer of assets and liabilities to a 
bridge  bank 
The Royal Decree- Law provid es that the bridge bank will be subject to the regulations applicable to CIs, 
including supervisory and sanctioning regimes. It could s pecif y that the bridge bank will be authorised as 
a CI, which is implied by the paragraph on the withdrawal of authorisation. The Royal Decree- Law does 
not contain any provision s on the treatment of the bank ing licen ce of a CI  after most of its  assets and 
liabilities are transferred to a bridge bank. It could specif y that, when a  bridge bank  is granted 
authorisation, the authorisation f or the CI  undergoing resolution will be withdrawn. 
 
                                                 
19  See, for example, Opinions CON/2012/64 and CON/2012/71.  
20  The FROB is a public law entity with legal personality and closely dependent on the State.  
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10 This opinion will be published on the ECB’s website.  
 
 
Done at Frankfurt am Main,  9 January 2013.  
 
[signed]  
 
The President of the ECB  
Mario DRAGHI