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Updates Corporate 5-2012

02/05/2012
Commentaries

FINANCIAL SYSTEM REFORM
ROYAL DECREE-LAW 2/2012 OF FEBRUARY 3, 2012, ON FINANCIAL INDUSTRY REFORM

A new royal decree-law reforming the financial industry was published in the Official State Gazette on February 4, 2012 (Royal Decree-Law 2/2012).
Taking forward earlier measures passed to avoid or reduce the consequences of future financial downturns, the aim of this new legislation is to build up the confidence, credibility and strength of the financial system so that it can recommence funding economic growth and the creation of jobs. Such goals are to be achieved through a significant tightening of write-down requirements for real estate assets and the provision of incentives for further consolidation in the industry (in the form of extended periods for balance sheet adjustments and assistance from the state’s Fund for Orderly Bank Restructuring of FROB). As highlighted in the decree’s Preamble, the financial industry will be expected to shoulder the whole of the cost of the reform.

The new legislation has also amended Royal Decree-Law 9/2009, of June 26, 2009 on Bank Restructuring and Reinforcement of the Capital of Credit Institutions (the “Restructuring Royal Decree-Law”), regarding the forms that FROB funding can take, and Royal Decree-Law 11/2010, of July 9, 2010 on Governing Bodies and Other Aspects of the Regulatory Framework of Savings Banks (the “Savings Banks Royal Decree-Law”), seeking mainly to simplify the governance structures of savings banks that conduct their business indirectly through shareholdings in other institutions.

In one of its most controversial provisions, the new royal decree-law places caps on boardroom and executive pay at institutions that receive public funding to help straighten out their finances or for a restructuring.

Another key measure brought in, aside from the reform of the banking system, is the long-awaited extension of the rules for computing losses for the purposes of mandatory capital reductions or winding-up at capital companies, as provided in Royal Decree-Law 10/2008, of December 12, 2008.

It also sets out other ancillary provisions for achieving these main aims.

INDEX

1. PURPOSE
2. WRITE-DOWNS OF REAL ESTATE ASSETS AT CREDIT INSTITUTIONS
3. CONCENTRATIONS BETWEEN CREDIT INSTITUTIONS
4. AMENDMENTS TO THE RESTRUCTURING ROYAL DECREE-LAW. SUPPORT MEASURES FROM THE FROB TO BANKING MERGERS
5. CHANGES TO THE LEGISLATION ON GOVERNANCE OF SAVINGS BANKS
6. CHANGES TO BOARDROOM AND EXECUTIVE PAY AT CREDIT INSTITUTIONS THAT HAVE RECEIVED PUBLIC FUNDS
7. OTHER CHANGES

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