Opinion of the European Central Bank of 22 July 2009 on bank restructuring and reinforcement of credit institutions’ own funds (CON/2009/62)
Date: 2009-07-22
Institutions: European Central Bank
Subjects: Spain, State aid, bank deposit, capital increase, financial institution, financial stability, guarantee, national law

EN 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 22 July 2009  

on bank restructuring and reinforcement of credit institutions’ own funds  

(CON/2009/62) 

Introduction and legal basis 

On 3 July 2009 the European Central Bank (ECB) received a request from the Spanish State Secretary for 

Economic Affairs for an opinion on Royal Decree-Law 9/2009 of 26 June 2009 on bank restructuring and 

reinforcement of credit institution’s own funds (hereinafter ‘the Royal Decree-Law’).  

The  ECB’s  competence  to  deliver  an  opinion  is  based  on  Article  105(4)  of  the  Treaty  establishing  the 

European Community 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  European  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 institutions 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 of the Royal Decree-Law 

The Royal Decree-Law is motivated by the ongoing financial market crisis and by the need for an ordered 

restructuring  of  the  Spanish  banking  system  to  avoid  potential  systemic  risks,  thus  maintaining 

confidence in the national financial system and enhancing its strength and solvency. This ensures that the 

institutions that remain are solid and can provide credit as usual.    

The restructuring model is based on the three existing deposit guarantee schemes and on the use of a new 

ad hoc institution: the Fund for Ordered Bank Restructuring (hereinafter the ‘FROB’). In a first phase, an 

action plan will be adopted in the context of the deposit guarantee schemes. If such action plan fails, a 

second phase will start with intervention by the FROB. The FROB will temporarily replace the directors 

of the affected institution and will submit a restructuring plan to the Banco de España aimed at a merger 

with another institution or at an overall or partial transfer of assets and liabilities to another institution. 

The FROB may grant funding to the affected institution or acquire its assets or shares. It may also support 

inter-institutional  integration  processes  by  acquiring  securities,  subject  to  buy  back,  issued  by  two  or 

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OJ L 189, 3.7.1998, p. 42.  

 
 
 
 
                                                 
more  credit  institutions  in  the  context  of  an  integration  plan  submitted  to  the  Banco  de  España.  The 

FROB  may  secure  additional  funding  on  the  securities  markets  by  issuing  fixed-rate  securities  with  a 

State  guarantee.  Finally,  it  may  also  support  restructuring  plans  by  granting  funding  to  the  deposit 

guarantee schemes. 

2. 

General observations  

2.1  The Spanish Government has already adopted and  published the Royal-Decree Law on an urgent 

basis,  thus  giving  it  normative  effects,  and  the  Spanish  Parliament  has  already  validated  it. 

Therefore, this opinion relates to any further legislative amendments to the Royal-Decree Law and 

to its subsequent implementation.  

2.2  The ECB reminds the Spanish authorities of their obligation under Article 4 of Decision 98/415/EC 

to ensure the effective compliance with their duty to consult the ECB, in particular by consulting it 

at an appropriate stage in the law-making process.   

2.3  The ECB understands that implementing rules will complete the details of the Royal Decree-Law2. 

Consequently,  the  ECB  expects  to  be  consulted  on  any  proposed  implementing  legislation  to  be 

adopted under the Royal Decree-Law that materially influences the stability of financial institutions 
and markets3. 

2.4  The ECB has issued a number of opinions at the request of the Spanish authorities and also other 
Member State authorities on national measures adopted in response to the global financial crisis4. 

The ECB invites the Spanish State Secretary for Economic Affairs to take into account observations 

made  in  its  recent  opinions  on  similar  draft  legislative  provisions  in  other  Member  States.  In 

particular, the ECB refers to the importance of the guidance provided by the Ecofin Council to the 
Member  States  in  the  conclusions  of  its  Meeting  of  7  October  20085  as  well  as  the  Declaration 
issued by the Heads of State of the euro area on 12 October 2008 (hereinafter the ‘Declaration’)6. In 

particular,  the  ECB  emphasises  that  any  initiatives  put  in  place  by  the  competent  national 

authorities to restore confidence in the financial markets should be coordinated and should aim to 

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6  

See the seventh final provision of the Royal Decree-Law. 
See the definition of ‘draft legislative provisions’ under Article 1(1) and also the sixth indent of Article 2(1) of Decision 
98/415/EC. 
All ECB opinions are available on the ECB’s website at www.ecb.europa.eu. 
See ‘Immediate Responses to Financial Turmoil’, Ecofin Council Conclusions of 7 October 2008, available on the former 
French  Presidency’s  website  at  www.ue2008.fr.  The  Ecofin  Council  recommended  that:  (i)  interventions  should  be 
timely and the support should in principle be temporary; (ii) the interests of taxpayers should be protected; (iii) existing 
shareholders should bear the due consequences of the intervention; (iv) the Government should be in a position to bring 
about a change of management; (v) management should not retain undue benefits; (vi) governments may have, inter alia, 
the power to intervene in remuneration; (vii) legitimate interests of competitors must be protected, in particular through 
the State aid rules; and (viii) negative spill-over effects should be avoided.  
The text of the Declaration is available on the former French Presidency’s website at www.ue2008.fr. The Member States 
agreed  to:  (i)  ensure  appropriate  liquidity  conditions  for  financial  institutions;  (ii)  facilitate  the  funding  of  banks; 
(iii) provide  financial  institutions  with  additional  capital  resources  to  continue  to  ensure  the  proper  financing  of  the 
economy;  (iv)  allow  for  an  efficient  recapitalisation  of  distressed  banks;  (v)  ensure  sufficient  flexibility  in  the 
implementation of accounting rules; and (vi) enhance cooperation procedures among European countries. 

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implement the common principles in question, in a spirit of close cooperation with other Member 
States and the Community institutions7. The principles contained in the Declaration, as well as the 

conclusions  raised  by  the  Ecofin  Council,  were  endorsed  by  the  European  Council  of  15  and 
16 October  20088.  Moreover,  measures  taken  by  competent  national  authorities  in  relation to 

financial institutions in the context of the current global financial crisis have been subject to further 
coordination at European Union level9. As a general remark in this context, the ECB, in line with its 
previous  opinions10,  notes  the  importance  of  putting  a  transparent  and  predictable  framework  in 

place by defining the terms and conditions for financial institutions to have recourse to it and the 

parameters  of  and  limitations  to  the  exercise  by  the  authorities  of  their  powers  when  deciding 

whether to apply such aid measures. 

3. 

Specific comments  

3.1  The Banco de España’s financial role 

From Article 2(6) of the Royal Decree-Law the ECB understands that the Banco de España would 

be solely responsible for the FROB’s cash service subject to a specific agreement. The ECB expects 

that  the  Banco  de  España’s  financial  involvement  will  not  go  beyond  the  agent  function  and,  in 

particular,  that  it  will  fully  comply  with  the  prohibition  on  monetary  financing  laid  down  in  the 

Treaty.  

3.2  Recapitalisation scheme 

In  line  with  the  abovementioned  general  observations,  the  ECB  recalls  that  recapitalisation 

measures  in  the  Member  States  should  be  aimed  at  strengthening  the  capital  position  of 

fundamentally sound financial institutions to improve the functioning and stability of the banking 

system  and  to  ensure  the  proper  financing  of  the  economy.  In  particular,  there  should  be  a 

consistent  approach  to  defining  the  conditions  for  recapitalisations  and  the  pricing  of  the 

instruments  intended  to  provide  Tier  1  capital  to  financial  institutions.  The  ECB  underlines  the 

importance of appropriate pricing for recapitalisations with a view to enhancing the stability of the 

financial  system,  facilitating  a  return  to  normal  market  conditions,  ensuring  a  level  playing-field 

and the proper financing of the economy.  

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See Opinion CON/2009/12. 
See Brussels European Council of 15 to 16 October 2008, paragraph 3 of the Presidency Conclusions. 
Communication  from  the  Commission  —  The  application  of  State  aid  rules  to  measures  taken  in  relation to  financial 
institutions  in  the  context  of the  current  global  financial crisis  (OJ  C  270,  25.10.2008,  p.  8);  Communication  from  the 
Commission  —  The  recapitalisation  of  financial  institutions  in  the  current  financial  crisis:  limitation  of  aid  to  the 
minimum  necessary  and  safeguards  against  undue  distortions  of  competition  (OJ  C  10,  15.1.2009,  p.  2);  
Recommendations of the Governing Council of the European Central Bank on government guarantees for bank debt and 
Recommendations of the Governing Council of the European Central Bank on the pricing of recapitalisations, both latter 
documents are available on the ECB’s website at www.ecb.europa.eu.  
See paragraph 3.1.2 of Opinion CON/2009/18. 

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Against this background, the recommendations of the ECB’s Governing Council on the pricing of 
recapitalisations11 have been published. The ECB highlights that the pricing conditions for capital 

support  should  be  risk-based  and  market-oriented,  determined  on  the  basis  of  the  costs  of  a 

corresponding  guarantee  in  the  market  by  taking  into  consideration  the  specific  risk  of  both  the 

specific instrument chosen for injecting capital and the institution concerned. Specific features of 

the instruments for capital injections, such as preference shares, should be appropriately chosen so 

that, while encouraging an early end to the State’s capital support of banks, they should not result 

in an excessive increase in the cost of capital.  

3.3  Temporary nature of the scheme 

In line with the previous general considerations, harmonisation of the expiry of national financial 

support schemes throughout the EU, and in particular within the euro area, is of crucial importance, 

including  in  relation  to  State  capital  investments  in  financial  institutions.  In  the  same  vein,  the 

Declaration clearly draws attention to the need for any national support scheme to be temporary in 

nature, even if it may be extended or renewed. In this respect, specific provisions on time limits in 

relation to bank restructuring and reinforcement of credit institutions’ own funds under the Royal 
Decree-Law should be adopted and clearly specified12. 

This opinion will be published on the ECB’s website. 

Done at Frankfurt am Main, 22 July 2009. 

[signed] 

The Vice-President of the ECB 

Lucas D. PAPADEMOS 

11

12  

Recommendations of the Governing Council of the European Central Bank on the pricing of recapitalisations, issued on 
20 November 2008 and available on the ECB’s website at www.ecb.europa.eu. 
See paragraph 3.5 of Opinion CON/2008/76 or paragraph 3.2 of Opinion CON/2009/6. 

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