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28.7.2012 Official
Journal
of
the
European
Union L
202/17
DECISIONS
COUNCIL DECISION
of 23 July 2012
addressed to Spain on specific measures to reinforce financial stability
(2012/443/EU)
THE COUNCIL OF THE EUROPEAN UNION,
funding markets on affordable terms and, thus, have
become highly dependent on Eurosystem refinancing.
In addition, their borrowing capacity has been severely
limited by the impact of rating downgrades on collateral
availability.
Having regard to the Treaty on the Functioning of the European
Union, and in particular Article 136(1)(b), in conjunction with
Article 126(6) thereof,
(4) The
sizeable
contraction
of
the
economy
in
recent
years,
which is affecting employment and unemployment in a
Having regard to the proposal from the European Commission,
very negative way, has deteriorated substantially the
budgetary position in Spain. According to a Commission
services update of the 2012 spring forecast, the general
government deficit is projected at 6,3 % of GDP in 2012,
which compares to an expected deficit of 5,3 % of GDP
Whereas:
in the 2012 stability programme and the draft 2012
budget law. Gross public debt rose to 68,5 % of GDP
in 2011, and according to the Commission services
update of the 2012 spring forecast it is expected to
(1)
Article 136(1)(b) of the Treaty on the Functioning of the
surge to 80,9 % of GDP in 2012 and to 86,8 % in
European Union (TFEU) foresees the possibility of setting
2013, based on a no-policy-change scenario, thus
out economic policy guidelines specific to the Member
exceeding the Treaty reference value in all years. Risks
States whose currency is the euro.
related to the macroeconomic scenario and the budgetary
targets, as well as to additional financial rescue measures,
may contribute to a further increase in public debt. In
view of these developments, on 10 July 2012 the
Council issued a recommendation to Spain under the
(2) In the Recommendation on the National Reform
excessive deficit procedure (EDP) to put an end to the
Programme 2012 of Spain and delivering an opinion
present excessive deficit situation by 2014.
on the Stability Programme for Spain, 2012-2015 ( 1 ),
the Council recommended that Spain take action to
‘implement the reform of the financial sector, in
particular complement the on-going restructuring of the
banking sector by addressing the situation of remaining
weak institutions, put forward a comprehensive strategy
(5) The
Spanish
authorities
have
taken
a
number
of
to deal effectively with the legacy assets on the banks’
important measures to address the problems in the
balance sheets, and define a clear stance on the funding
banking sector. These measures include the clean-up of
and use of backstop facilities’.
banks’ balance sheets, increasing minimum capital

requirements, restructuring of the savings bank sector,
and significantly increasing the provisioning requirements
for loans related to Real Estate Development (RED) and
foreclosed assets. These measures, however, have not
(3) Abundant
availability
of
external
financing
at
low
cost
in
been sufficient to alleviate market pressure.
the 2000s fuelled a credit-driven domestic demand and
asset boom in Spain, concentrated in particular in the
real estate sector. The burst of the real estate and
construction bubble and the economic recession that
followed have adversely affected the Spanish banking
(6) In
February
2011,
the
Spanish
authorities
raised
the
sector. As a result, with the exception of a few large
minimum capital ratio requirement (‘capital principal’)
and internationally diversified credit institutions,
to 8 % of banks’ risk weighted assets and gave banks
Spanish banks have largely lost access to wholesale
until September 2011 to comply with this new regu
lation. For banks more dependent on wholesale funding
( 1 ) OJ C 219, 24.7.2012, p. 81.
and characterised by a limited market access the

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L 202/18
EN
Official Journal of the European Union
28.7.2012
minimum capital ratio was increased to 10 %. In
(10) Increasing the long-term resilience of the Spanish
February and May 2012, new legislation required banks
banking sector is critical to preserving financial stability
to build higher provisions and capital buffers against
in Spain and limiting the contagion of financial stress to
possible losses on both performing and non-performing
other euro-area economies and, thus to avert adverse
loans on the legacy stock of construction and real estate
effects on the proper functioning of the economy and
assets. The expected overall volume of these new
of economic and monetary union. Significant measures
provisioning requirements amounted to approximately
taken so far to address these problems have not been
EUR 84 billion.
fully sufficient. Further measures are therefore necessary.
In particular, Spain should implement additional specific
measures to effectively deal with legacy assets, restore
market-based funding, reduce banks’ reliance on central
bank liquidity support, and to enhance the risk identifi
cation and crisis management mechanisms.
(7) As
of
April
2012,
the
total
gross
financial
contribution
by the Spanish State (excluding bond issuance guar
antees) amounted to about EUR 15 billion. The capital
support was provided via the Fund for Orderly Bank
Restructuring (FROB) endowed with a capital of EUR
15 billion, of which EUR 9 billion was already paid in.
(11) As
part
of
the
overall
strategy,
it
is
key
to
effectively
deal
The State has also provided guarantees to bank senior
with the legacy assets by requiring a clear segregation of
bond issues by banks amounting to about EUR 86 billion
problematic assets of aided banks from the banks’
(out of this total, about EUR 58 billion in guarantees was
balance sheets. This should apply, in particular, for
outstanding). Although the FROB still had a remaining
loans related to RED and foreclosed assets. Such segre
capacity of three times its capital allocation, public sector
gation would remove any remaining doubts about the
support will not be sufficient to provide a sufficiently
quality of the banks’ balance sheets, allowing them to
large backstop for conducting the required system-wide
better carry out their financial intermediation function.
clean-up of the banking sector.
(8) Concerns
about
the
need
for
further
banking
sector (12) In
addition,
improving
the
transparency
of
banks’
balance
recapitalisation have contributed to increasing market
sheets in this manner can facilitate an orderly downsizing
pressures on Spanish government bonds. Sovereign
of bank exposures to the real estate sector, restore
bond yields have reached levels of well over 500 basis
market-based funding, and reduce banks’ reliance on
points in late June 2012 and early July 2012, increasing
central bank liquidity support.
the funding costs for the Spanish sovereign. The rising
interest burden adds to the challenge of consolidating
public finances in Spain and correcting the excessive
deficit. Therefore, comprehensive banking sector restruc
turing and recapitalisation is an important element in
reducing pressure on public finances.
(13) Ensuring
a
sound
framework
for
the
Spanish
banking
sector requires that the risk identification and crisis
management mechanisms are enhanced. An effective
strategy should comprise changes aimed at strengthening
the regulatory and supervisory framework, taking into
account the experiences of the financial crisis. In
(9) On
25
June
2012,
the
Spanish
authorities
officially
addition, corporate governance shall be enhanced in
requested financial assistance in the context of the
line with international best practices,
ongoing restructuring and recapitalisation of the
Spanish banking sector. The assistance is sought under
the terms of the Financial Assistance for the Recapitali
sation of Financial Institutions by the European Financial
Stability Facility. The assistance provided is subject to
specific financial sector conditionality, as foreseen in
HAS ADOPTED THIS DECISION:
the Memorandum of Understanding (MoU) negotiated
between the Spanish Government and the Commission,
in liaison with the European Central Bank (ECB) and the
European Banking Authority (EBA), with the technical
assistance of the International Monetary Fund (IMF). It
will include both bank-specific conditionality in line
Article 1
with State aid rules and horizontal conditionality. In
parallel, Spain will have to comply fully with its
1. The
Commission,
in
consultation
with
the
ECB,
the
EBA
commitments and obligations under the EDP and the
and the IMF, has agreed with the Spanish authorities the specific
recommendations to address macroeconomic imbalances
financial-sector policy conditions attached to the financial
within the framework of the European Semester.
assistance. Those conditions are laid down in the MoU to be

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EN
28.7.2012 Official
Journal
of
the
European
Union L
202/19
signed by the Commission and the Spanish authorities. The
4. In
order
to
ensure
a
sound
framework
for
the
banking
detailed financial terms shall be laid down in a Financial
sector, Spain shall also strengthen the regulatory and super
Assistance Facility Agreement.
visory frameworks as well as reinforce governance. The
strategy and conditionality, which is comprehensively specified
in the MoU, shall, inter alia, include the following measures:
Spain shall adequately recapitalise and thoroughly restructure its
banking system. In that regard, Spain shall develop in coor
dination with the Commission and in consultation with the
(a) requiring Spanish credit institutions to increase their
ECB a strategy for the future structure, functioning and
Common Equity Tier (CET) 1 ratio to at least 9 %
viability of the Spanish banks which will identify how to
according to the definition of capital established in the
ensure that they are able to operate without further state
EBA recapitalisation exercise;
support. This strategy will be further specified in the MoU,
developing further the policy conditions embedded in this
Decision.
(b) requiring, from 1 January 2013, Spanish credit institutions
to apply the definition of capital established in the Capital
Requirements Regulation (CRR);
2. The
key
components
of
this
strategy
shall
be
an
overhaul
of the weak segments of the Spanish banking sector and a
strengthening of the regulatory and supervisory frameworks
for the banking sector.
(c) re-assessing the legal framework for loan-loss provisioning.
In particular, on the back of the experiences of the financial
crisis, the Spanish authorities shall make proposals to
revamp the permanent framework for loan loss
3. The overhaul of the weak segments of the Spanish
provisioning, taking into account the temporary measures
banking sector shall be comprised of the following three
introduced during the past months, as well as the EU
elements:
accounting framework;
(a) identification of individual bank capital needs through a
(d) further strengthening, the operational independence of the
comprehensive asset quality review of the banking sector
Banco de Espaa; in line with the international recommen
and a bank-by-bank stress test, based on that asset quality
dations and standards, transferring the sanctioning and
review. On the basis of the stress test results, banks in need
licensing powers of the Ministry of Economy with respect
of capital injection will be divided in three different groups.
to the banking sector to the Banco de Espaa;
Each group will be subject to the obligation to present
restructuring and resolution plans, and all the comple
mentary and subsequent measures, as provided in the MoU;
(e) further enhancing the supervisory procedures of Banco de
Espaa based on an internal audit;
(b) recapitalisation, restructuring and/or resolution in an orderly
way of weak banks, based on plans to address any capital
shortfalls identified in the stress test. These plans will be
(f) reviewing the governance arrangements of the financial
based in the principles of viability, minimising the cost for
safety net agencies (FROB and DGF) to avoid potential
taxpayers (burden sharing) and limiting distortions of
conflicts of interest;
competition. To that effect, Spain will adopt legislation to:
(i) allow the implementation of Subordinated Liability
Exercises, including mandatory forms of burden sharing,
and (ii) upgrade the bank resolution framework in order
(g) strengthening the rules on the governance of the savings
to incorporate relevant resolution powers for FROB and
bank sector and of the banks owned by savings banks;
the Deposit Guarantee Fund (DGF), and taking into
account the EU regulatory proposal on crisis management
and bank resolution, including special tools to resolve
unviable banks;
(h) amending consumer protection and securities legislation to
limit the sale by banks of subordinate debt instruments (or
instruments not covered by the DGF) to non-qualified retail
clients, and strengthening compliance monitoring by the
(c) segregation of assets in those banks receiving public support
authorities;
in their recapitalisation effort and their transfer of the
impaired assets to an external Asset Management
Company (AMC), to realise their long-term value. Spain,
in close consultation with the Commission, the ECB and
(i) taking steps to minimise the cost to taxpayers of bank
the EBA and with the technical assistance of the IMF, will
restructuring. After allocating losses to equity holders, the
prepare a comprehensive legislative framework for the
Spanish authorities will require burden sharing measures
establishment and functioning of the AMC, in order to
from hybrid capital holders and subordinated debt holders
make it fully operational by November 2012.
in banks receiving public capital;

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L 202/20
EN
Official Journal of the European Union
28.7.2012
(j) committing to capping pay levels of executive and super
basis. Monitoring of the FROB activities in the context of the
visory board members of all State-aided banks;
programme will take place regularly.
(k) enhancing the public credit register.
Article 2
This Decision is addressed to the Kingdom of Spain.
5. The
authorities
will
provide
to
the
Commission,
the
ECB,
EBA and the IMF, under strict conditions of confidentiality, the
data needed for monitoring of the banking sector.
Done at Brussels, 23 July 2012.
6. The
Commission,
in
liaison
with
the
ECB
and
EBA,
will
For the Council
verify at regular intervals that the policy conditions attached to
the financial assistance are fulfilled, through missions and
The President
regular reporting by the Spanish authorities, on a quarterly
C. ASHTON

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