IMF - Spain: Financial Sector Assessment Program—Technical Note on Crisis Management and Bank Resolution
The International Monetary Fund has published my Financial Sector Assessment Program (FSAP) report on the Spanish financial safety net, crisis management, and resolution arrangements for the financial sector.
The assessment was conducted in October 2023. It concluded that the statutory foundations underlying the Spanish financial safety net and resolution regime are sound. The Banking Recovery and Resolution Directive and Single Resolution Mechanism Regulation establish a comprehensive statutory regime. The authorities have made good progress in establishing an effective crisis management and resolution regime since the previous FSAP. They have also supported the Single Resolution Board in setting resolution plans for Significant Institutions (SIs) and agreed on resolution plans for Less Significant Institutions (LSIs); enhanced cross-authority coordination; developed crisis management manuals; and participated in crisis simulation exercises.
However, the report emphasises further action is needed to operationalise the regime:
Statutory Resolution Regime: the Spanish statutory resolution regime needs to be refined to ensure it is fit-for-purpose. The report noted three priority reforms: 1) The FROB should be provided with the administrative resolution power to override shareholders and management rights and take control of a bank subject to a bail-in resolution without needing to appoint a special manager or demonstrate “reasons of special urgency”; 2) Bank liquidators should be provided with the power to transfer deposit accounts backed by bank loan assets out of liquidation and to an acquirer where one has been identified; and 3) expanding the set of resolution options available to authorities by transposing the government stabilization tools as a last resort option in a manner that is allowed under European law.
Resolution Authority Institutional Design: Spain has separated the institutional responsibility for preparing for bank failure through resolution planning (i.e. “preventative” resolution authority functions) from the implementation of the resolution tools when banks fail (i.e. “executive” resolution authority functions). The Banco de España (BdE) is responsible for the former and FROB is responsible for the latter. The FSAP recommended that preventative and executive resolution authority functions should both be vested in the same authority. This will ensure that the authority responsible for implementing orderly resolution actions has control over the primary levers necessary to achieve its objectives, thereby aligning incentives with responsibility.
Liquidity in resolution: The FSAP recommended the BdE establish an approach to addressing liquidity needs for banks recapitalized through the resolution process. The mission recommended that: (a) the BdE put in place a policy framework on its role as lender of last resort; and (b) ensure operational capability, including by establishing testing arrangements to verify the effectiveness of its crisis lending capabilities, covering Emergency Liquidity Assistance (ELA) and liquidity in resolution lending arrangements, and by assessing liquidity needs of banks as part of firm-specific resolution planning processes. All banks seeking access to any central bank liquidity facility need to meet eligibility criteria including solvency requirements. Such national level arrangements would complement efforts at the European level to arrive at a common approach to addressing liquidity needs of banks that have been recapitalized through the resolution process, an issue that could be considered in the forthcoming FSAP of the Euro Area.
The FSAP report is the result of extensive discussions with officials and senior staff from the Spanish authorities including Minister of Economy, Trade and Enterprise (MINECO), Banco de España (BdE), Comisión Nacional del Mercado de Valores (CNMV) and and Spain’s Executive Resolution Authority (FROB), as well as private-sector stakeholders, including domestic and foreign banks and the wider industry. It was a pleasure collaborating with all of them. I sincerely appreciate their excellent engagement, open dialogue, and warm hospitality throughout the FSAP process, which involved significant work for everyone over an 18-month period. These collective efforts have contributed significantly to producing this report and its accompanying recommendations.