Regulation of Spanish banks

Author: | Published: 25 Apr 2003
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Spanish banking regulations are the result of EU directives on banking, which were mainly implemented during the 90s. The main operators in the banking market are credit institutions. The Spanish term entidad de crédito or credit institution refers to intermediaries operating in credit markets which, on a regular basis, receive funds from the public and use those funds on their own to grant loans or enter into similar transactions.

There are three types of credit institution in Spain: banks which are public limited liability companies; saving banks (cajas de ahorro), which are set up under a special legal form for non-profitable purposes although they operate as banks; and credit co-operatives, which were originally set up to provide banking services for their own members but have now gained some flexibility as to who they may provide services to.

There are also credit financial institutions (establecimientos financieros de crédito), which consist of what were credit institutions limited to rendering one or several side-services, such as finance leasing companies, building societies and money market houses. Royal Decree 692 of April 26 1996 regulates these types of institutions.

Setting up a bank

The setting up of a bank in Spain is subject to a prior non-discretionary administrative authorization from the Ministry of Economy and Finance.

This authorization is also required to incorporate a branch by a company not residing in a European Union member state.

Banks in Spain must take the corporate form of public limited liability companies and must have an initial capital of €18 million in registered shares, which must be fully subscribed for and paid up in cash. They must have their registered address or head office in Spain.

The basic steps for setting up a bank in Spain are the following:

  • 20% of the minimum corporate capital has to be deposited with the Bank of Spain (Banco de España) either in the form of cash or securities.
  • If authorization is granted the act of incorporation must be carried out before a Public Notary who will prepare the deed of incorporation.
  • Incorporation gives rise to a 1% tax on the share capital.
  • After payment of incorporation tax the deed of incorporation is filed with the Commercial Registry.
  • The bank must also be entered into a special administrative register kept by the Bank of Spain

Qualifying holdings in credit institutions

Spanish law on qualifying holdings differs in some respects from other European legislation. A qualified holding exists where the shareholder holds or intends to hold 5% or more of the capital or voting rights of the bank in question or if the intended holding would allow the shareholder to exercise control over the bank. All acquisitions of qualified holdings have to be notified to the Bank of Spain, which can object to the acquisition within three months if it considers the acquisition unsuitable. There is also an obligation to notify if the acquisition takes the shareholder above thresholds of 10%, 15%, 25%, 40%, 66% or 75% of the share capital or voting rights.

General control and supervision

Two separate institutions supervise the banking and securities markets in Spain. While the securities market is supervised by the Spanish Comisión Nacional del Mercado de Valores (CNMV), the Bank of Spain, Spain's central bank, supervises the country's credit institutions and banking system. The Bank of Spain is completely independent and not subject to the Spanish government's orders or instructions. In 1999 the Bank of Spain was integrated into the European System of Central Banks.

The Bank of Spain is therefore subject to EU Treaty regulations and must follow the European Central Bank's regulations and instructions. The European Central Bank has exclusive authority over monetary policy, and the fulfilment of the said policy is carried out through the national central banks.

The Bank of Spain acts as supervisory authority and has the power to impose administrative penalties on credit institutions and their directors or managers who infringe the provisions of the 1988 Act on Discipline and Intervention in Credit Institutions, as amended. Infringements are divided into three categories:

Very serious infringements which include carrying out operations reserved for credit institutions without authorisation, failure to comply with obligations regarding annual accounts and auditing; serious infringements which include carrying out individual operations that fall outside the corporate object of the institution in question, failure to comply with obligations relating to cash deposits or other obligations deriving from monetary controls and failure to keep proper reserves; and light infringements this is a catchall category and includes all infringements, which do not fall within the other two categories.

Penalties vary according to the seriousness of the infringement and may result in the revocation of authorisation to operate as a credit institution and/ or fines of up to 1% of the credit institution's own funds. Directors or managers responsible for the infringement(s) may be fined up to €60,000 and suspended from their posts for up to three years.

Foreign credit institutions

One of the most significant steps in the process of implementing EU banking legislation in Spain was the 1994 Act that implemented the Second Banking Co-ordination Directive and introduced a single banking license under which credit institutions authorized to operate in one EU member state are also authorized to operate throughout the EU.

Credit institutions from other EU member states do not need authorization from the Spanish authorities provided they are authorized in their home state for the operations they intend to carry out in Spain.

Article 52 of the 1988 Act on Discipline and Intervention in Credit Institutions, which was amended to implement EU banking directives, lists the activities which can be carried out by branches of credit institutions from other EU Member States (which differs slightly from the list in Annex II of the Directive):

  • Acceptance of deposits or other reimbursable funds
  • Lending and credit activities, including consumer credit, secured lending and financing of commercial transactions
  • Factoring with and without recourse
  • Leasing
  • Payment operations including payment and transfer services
  • Issuance and administration of means of payment such as credit cards, travellers' cheques and bankers' drafts
  • Issuance of guarantees and similar undertakings
  • Trading in the interbank markets
  • Trading on own account or on account of customers in negotiable securities, money market instruments, foreign exchange, financial futures and options and exchange and interest rate instruments
  • Participation in issues of securities, mediation in their sale on own account or on account of the issuer and the underwriting of issues
  • Portfolio management of securities
  • Preparation of commercial reports
  • Safe custody services

EU credit institutions can also provide services directly in Spain without operating through a branch or subsidiary. They are allowed to do so immediately after the Bank of Spain receives notification from the authorities in the institution's home state, which must list the activities to be carried out in Spain.

Credit institutions based in another EU member state acting directly or through branches or subsidiaries in Spain must also respect regulations adopted in the interests of the general public which have been passed by either the national government, the autonomous regions or local authorities, as well as Spanish provisions for the supervision and organization of credit institutions.

Financial credit institutions from outside the EU may also wish to operate in Spain either by offering services from an establishment abroad or by way of a permanent presence in Spain in the form of a subsidiary, branch or representative office. As regards subsidiaries the same considerations apply here as those which apply to the setting up of domestic credit institutions.

Branches of non-EU foreign credit institutions can be established using a procedure similar to that for setting up a domestic credit institution. The minimum funding for this type of branches is €18 million, 20% of which has to be deposited with the Bank of Spain.

Two other considerations are relevant to the setting up of subsidiaries or branches by credit institutions from non-EU member states: compliance with the reciprocity principle and prior authorization from the Spanish Ministry of Economy and Finance (which, as set out above is not required for branches of EU credit institutions).

In the case of both EU and non-EU foreign subsidiaries or branches, prior administrative screening is necessary if the foreign investment involved exceeds €3 million.

Bank insolvency

The Bank of Spain may intervene in a credit institution and replace directors and managers in exceptional circumstances, which threaten the institution's funds, stability, liquidity or solvency until the crisis is resolved. The intervention can be at the request of the directors, a minority of the shareholders or on the initiative of the Bank of Spain itself. All acts carried out by the credit institution in question after the publication of the intervention in the Official State Gazette are void unless they have been expressly authorized by the Bank of Spain.

There is also a deposit guarantee fund (fondo de garantía de depósitos) funded by annual contributions from credit institutions participating in the fund. The Bank of Spain also makes a contribution equal to that paid by the member credit institutions. All authorized credit institutions in Spain can become members of the fund. If any credit institution does not become a member it is ineligible to benefit from the fund. The purpose of the fund is to pay to holders of deposits held in the credit institution a given maximum amount in cases where the credit institution is declared bankrupt or goes under administration.