25 July 2012

State aid: Commission approves Spanish recapitalisation scheme for credit institutions

The Commission has approved until 31 December 2012 a new Spanish scheme which will provide state support to banks which need to cover short-term capital needs following the stress test currently being conducted under the MoU.

The European Commission has approved until 31 December 2012 a new Spanish scheme aimed at strengthening the capital basis of credit institutions under EU state aid rules. The scheme will provide state support to banks which need to cover short-term capital needs following the stress test currently being conducted under the Memorandum of Understanding on Financial Sector Policy Conditionality (MoU). In addition, the scheme serves as a backstop facility for banks with urgent capital needs materialising before the stress test is completed. The Commission found the scheme to be in line with its rules on state support to banks during the crisis because it is limited in time and scope and contains exit incentives.

Joaquín Almunia, Vice President of the Commission in charge of competition policy, said: "The recapitalisation scheme is the first stepping stone for fulfilling the recently concluded Memorandum of Understanding. Under the programme, the Spanish financial sector will be rebuilt on a healthier basis. This is a key precondition for sustainable growth in Spain."

The scheme sets the conditions under which the Fondo de Reestructuración Ordenada Bancaria (FROB) will strengthen the own resources of credit institutions which, after the stress tests, would show a capital shortfall that they intend to cover with private sector resources in the mid-term but need support from the State during an interim period.

In addition, the scheme serves as a backstop facility for banks with urgent capital needs which materialise before the stress test is completed and which could result in those banks losing their banking license or posing a threat to financial stability.

The Commission found the scheme to be in line with EU State aid rules established for aid to banks in the current financial crisis. This is because the measures are limited in time and scope and contain incentives to redeem the state participation. The distortive effect of the recapitalisations will be minimised by adequate remuneration conditions, including annual step-up clauses. Conditions for a recapitalisation also include bans on the payment of dividends and on coupons for hybrid capital instruments. Banks benefiting from a capital injection need to provide a restructuring plan showing how they will restore their long-term viability without continued State support.

Background

This recapitalisation scheme is an essential element for the completion of the restructuring of the Spanish banking sector and the first of a series of milestones planned in the Memorandum of Understanding in order to increase the long-term resilience of the banking sector in Spain.

Press release

© European Commission