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Financial assistance for the recapitalisation of financial institutions in Spain

Financial stability support package for Spain

Spain has received financial assistance from euro area Member States via the European Financial Stability Facility (EFSF) of up to EUR 100 billion. The assistance has been subsequently taken over by the European Stability Mechanism (ESM). This assistance is conditional on specific policy measures as regards the financial sector that the country has to implement, as foreseen by the Memorandum of Understanding (MoU). In addition, Spain needs to honour its commitments under the excessive deficit procedure and regarding structural reform, with a view to correcting macroeconomic imbalances in the framework of the European semester.

The terms and conditions of the financial sector assistance were negotiated between the Spanish authorities and the European Commission (EC), in liaison with the European Central Bank (ECB) and the European Banking Authority (EBA), with technical assistance of the International Monetary Fund (IMF).

Spain requested financial assistance on 25 June 2012. The financial-sector-specific policy conditions contain measures to increase the long-term resilience of the banking sector, thus restoring its market access, and to deal effectively with the legacy stock of assets stemming from the burst of the real-estate bubble. The agreement was endorsed by the Eurogroup meeting in Brussels on 20 July 2012. The MoU and the Financial Assistance Facility Agreement (FFA) were accordingly signed thereafter.

Facts and figures on the programme for Spain

The MoU includes both bank-specific conditionality, in line with State aid rules, and horizontal conditionality. The financial assistance will be provided for the period July 2012 to December 2013. However, the restructuring of the banks receiving public support under the State aid rules is expected to take up to five years.

The bank-specific conditionality has three main components:

  • First, a comprehensive diagnostic as regards the capital needs of individual banks, based on a comprehensive asset quality review and valuation process, and bank-by-bank stress tests.
  • Second, the segregation of impaired assets from the balance sheet of banks receiving public support and their transfer to an external Asset Management Company.
  • Third, the recapitalisation and restructuring of viable banks and an orderly resolution of ultimately non-viable banks, with private sector burden-sharing as a prerequisite.

Horizontal conditionality applies to the entire banking sector, unlike bank-specific conditions, which only apply to banks unable to meet capital shortfalls identified by the bank-by-bank stress test without having recourse to State aid. The horizontal programme includes measures aimed, inter alia, at strengthening the regulatory, supervisory and bank resolution frameworks, enhancing the governance structure of savings banks and of commercial banks controlled by them, improving consumer protection legislation as regards the sale by banks of subordinated debt instruments.

The European Commission, in liaison with the ECB and EBA, has been verifying at regular intervals that the policy conditions attached to the financial assistance are fulfilled, through missions and regular reporting by the Spanish authorities, on a quarterly basis. The Spanish authorities have also requested technical assistance from the IMF to support the implementation and monitoring of the financial assistance with regular reporting. The role and involvement of the IMF in the programme is specified in separate Terms of Reference (ToR).

The loans have been provided to the Fondo de Reestructuración Ordenada Bancaria (FROB), the bank recapitalisation fund of the Spanish government, and then channelled to the financial institutions concerned. The funds were disbursed in two tranches amounting to €41.3 billion ahead of the planned recapitalisation dates, pursuant to the roadmap included in the Memorandum of Understanding and no further disbursements are currently foreseen.

The first tranche amounting to €39.468 billion was disbursed in December 2012, covering recapitalization needs of Group 1 banks (€37 billion) and the public stake in the asset management company (Sareb). The second tranche of assistance, amounting to €1.865 billion, was disbursed in February 2013 to recapitalise Group 2 banks.

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