Ministers concur with the assessment of the Commission, in liaison with the ECB, the EBA and the IMF, that providing a loan to Spain for the purpose of the recapitalisation of financial institutions is warranted to safeguard financial stability in the euro area as a whole. The Eurogroup agreed that the Fund for Orderly Bank Restructuring (FROB), acting as agent of the Spanish government, will receive the funds and channel them to the financial institutions concerned. The Spanish government will retain the full responsibility of the financial assistance.
The financial assistance will be accompanied by policy conditionality focusing on the financial sector. This conditionality consists of bank-specific measures, including in-depth bank restructuring plans in line with EU State aid rules and sector-wide structural reforms that embrace segregation of bank's problematic assets, and the governance, regulation and supervision of the banking sector. This conditionality will be enshrined in a Memorandum of Understanding that will be signed in the coming days.
The Eurogroup is confident that Spain will honour its commitments under the Excessive Deficit Procedure and with regard to structural reforms, with a view to correcting any macro-economic imbalances as identified within the framework of the European semester. Progress in these areas will be closely and regularly reviewed in parallel with the financial sector conditionality.
The financial assistance will be provided by the EFSF until the ESM becomes available, then it will be transferred to the ESM, without gaining seniority status. It will cover financing needs of up to €100 billion. As required by EFSF/ESM procedures, the specific amount will be determined based on a thorough bottom-up assessment of capital needs for individual banks, which has been launched and is expected to be finalised in September.
The loans to be used for bank recapitalisation will have an average maturity of up to 12.5 years, with any individual disbursement having a maximum maturity of up to 15 years. The EFSF will set aside €30 billion at the start of the financial assistance, which can be used in case of urgent unexpected financing needs. The Eurogroup is convinced that the reforms attached to this financial agreement will contribute to ensuring a return of all parts of the Spanish banking sector to soundness and stability.
Full statement
Main features of the Memorandum of Understanding
The agreed amount of assistance (covering the capital requirements of the banks in question and an additional safety margin) is up to €100 billion. The exact amount will be established after stress tests on 14 banking groups (about 90 per cent of the Spanish banking system) have been concluded in September this year.
The financial assistance will be provided as a loan to the Spanish government. It will be disbursed in several tranches via the European Financial Stability Facility (EFSF) and later transferred to the European Stability Mechanism (ESM), without gaining seniority status.
The first disbursement – €30 billion – will be prefunded and kept in reserve by the EFSF, to be used in case of urgent need in the Spanish banking sector before the results of the stress tests are known.
The funds will be received and distributed to the financial institutions concerned by the Spanish Fund for Orderly Bank Restructuring (FROB), which will act as the Spanish government's agent.
In a separate statement, Vice President Rehn said:
Today's unanimous endorsement by the Eurogroup of the sectoral programme for Spain opens the way to the necessary recapitalisation and repair of the country's financial sector. The aim of this programme is very clear: to provide Spain with healthy, effectively regulated and rigorously supervised banks, capable of nurturing sustainable economic growth.
The Memorandum of Understanding approved today sets out the precise conditions under which public money will be made available for solvent banks that are unable to raise the capital they need through private means. Restructuring plans will have to comply fully with EU state aid rules, to ensure that the banks that emerge at the end of the process will be viable entities that will not need further public support. In parallel, the regulatory and supervisory framework in Spain will be significantly reinforced and consumer protection legislation strengthened.
The Memorandum also makes clear that Spain will be expected to maintain its commitments to correct its excessive deficit in a sustainable manner by 2014 and to adopt the structural reforms set out in the country-specific recommendations adopted by the Council on 10 July. The explicit link between these obligations and the sectoral programme is deliberate and pertinent. It is only through determined action across all of these fronts that Spain can create the financial stability and competitive, dynamic economy that will bring about a steady and lasting fall in unemployment.
Requirements for banks
Banks requiring state aid for recapitalisation will have to undergo restructuring. The restructuring plans may include downsizing of unprofitable activities, de-risking through separation of the most problematic assets, and other steps. In addition, the banks will as far as possible have to contribute to the cost of restructuring from their own resources and to provide details of their actions in order to minimise the cost for taxpayers. In the case of non-viable banks, the Spanish authorities will have to submit an orderly resolution plan.
Wider reforms
Spain will have to review its financial regulatory framework: among other things, increasing transparency in financial sector reporting, and enhancing supervision. In parallel, it will have to honour its commitment to correct its excessive deficit by 2014 and to undertake the necessary structural reforms in the context of the European Semester. The European Commission, in liaison with the European Central Bank (ECB) and the European Banking Authority (EBA), will regularly review implementation of this conditionality.
The Spanish authorities asked for external financial assistance on 25 June this year. The Eurogroup agreed to grant it following an assessment by the Commission, the ECB and the International Monetary Fund, on grounds that such assistance would help to safeguard financial stability in the euro area as a whole.
Council press release "Eurogroup grants financial assistance to Spain's banking sector"
Financial Facility Agreement Spain/EFSF
Statement from IMF/Christine Lagarde © IMF
© European Council
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