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2. Financial institutions

2.2 Credit institutions

The main credit institutions, i.e. banks, savings banks and credit cooperatives, play a particularly important role in the financial industry in Spain, because of the volume of their business and their presence in all segments of the economy. Credit institutions are authorized to engage in what is referred to as “universal banking”, i.e. not to confine themselves to traditional banking activities consisting merely of attracting funds and financing by granting loans and credit facilities, but also to provide para-banking, securities market, private banking and investment banking services.

However, with the aim of removing imbalances in the Spanish financial industry to permit its restructuring, significant changes have been made in the industry, mainly affecting groups of national banks and savings banks. Accordingly, the restructuring process is being carried out through concentrations of savings banks, banks and credit cooperatives, the conversion of savings banks into banks and recapitalization processes at certain institutions. The trend in the Spanish credit institutions sector is therefore towards a reduction in the number of institutions registered with the Bank of Spain.

As of December 31, 2019, there are officially registered at the Bank of Spain the Official Credit Institute, 52 banks, 2 savings banks, 61 credit cooperatives, 35 representative offices in Spain of foreign credit institutions, 78 branches of non-Spanish EU credit institutions, 34 branches of non-EU credit institutions608 non-Spanish EU credit institutions operating in Spain without an establishment, 13 financial institutions which are subsidiaries of a non-Spanish EU credit institution, operating in Spain without an establishment, and 43 non-EU credit institutions operating in Spain without an establishment2.

Directive 2015/2366 of the European Parliament and of the Council of 25 November 2015 on payment services in the internal market (PSD2) was published in the Official Journal of the European Union on 23rd December 2015. This directive has been transposed into Spanish law through Royal Decree-Law 19/2018 of 23 November on payment services and other urgent measures in financial matters and Royal Decree 736/2019 of 20 December on the legal regime for payment services and payment institutions and amending Royal Decree 778/2012, of 4 May on the legal regime for electronic money institutions and Royal Decree 84/2015 of 13 February implementing Law 10/2014 of 26 June on the organisation, supervision and solvency of credit institutions.

2.2.1 Banks

Banks are corporations (Sociedades Anónimas) legally authorized to perform the functions reserved to credit institutions.

Their key features are summarized below:

Basic regulations
  • Law 10/2014, of June 26, 2014, on regulation, supervision and solvency of credit institutions.
  • Royal Decree 84/2015 of February 13 2015, implementing Law 10/2014 of June 26, 2014 on the regulation, supervision and solvency of credit institutions.
  • Regulation (EU) no. 575/2013 of the European Parliament and of the Council, of 26 June 2013, on prudential requirements for credit institutions and investment firms and amending Regulation (EU) no. 648/2012.
Corporate purpose
  • Restricted to the pursuit of typical banking activities and of the reserved activity for credit institutions, consisting of the attracting of repayable funds from the public— whatever the use to which they are to be put—in the form of deposits, loans, temporary assignments of financial assets or similar.
Minimum capital
  • A sum of €18 million, which must be fully subscribed and paid in.
Managing body
  • The Board of Directors must have no fewer than five members.
  • The members of the Board of Directors, individuals representing directors who are legal entities, and general managers or persons in similar positions, those in charge of the internal control functions, and those holding other positions which play a key part in the day-to-day pursuit of the activities of the credit institution or its parent Company, must be persons of good repute in business and professional terms, have the knowledge and experience required for the performance of their functions and be committed to the good governance of the entity. The meeting of these requirements is to be assessed in accordance with the provisions of the pertinent legislation.
  • Registration of the managers, directors and similar executives on the Register of Senior Officers.
Shares
  • Shares must be registered.
Formation of banks
  • It is up to the Bank of Spain to submit to the European Central Bank an authorization proposal for the formation of a bank.
  • Must be registered on the Register of credit institutions of the Bank of Spain.

2.2.2 Official Credit Institute (ICO)

It is a State-owned credit institution, attached to the Ministry of Economic Affairs and Digital Transformation through the Office of the Secretary of Economy and Business Support.

It acts as the State’s finance agency, providing financing pursuant to express instructions from the Government to those affected by serious economic crises or natural disasters. It also manages official export and development financing instruments.

2.2.3 Savings banks

Savings banks are credit institutions with the same freedoms as and full operational equality with the other members of the Spanish financial system. They have the legal form of private foundations and a community-welfare purpose and operate in the open market, although they reinvest a considerable portion of their earnings in community outreach projects3.

These long-standing institutions with deep roots in Spain have traditionally attracted a substantial portion of private savings, with their lending business characteristically focused on the private sector (through mortgage loans, etc.). They have also been very active in financing major public works and private-sector projects by subscribing and purchasing fixed-income securities.

Currently, as a result of the savings bank restructuring process, a number of savings banks have emerged which, while retaining their status as credit institutions, have stopped engaging directly in their traditional financial activity, as their financial business has been transferred to banks formed for that purpose and owned by the savings banks via the creation of Institutional Protection Schemes (IPSs).

Of a total of 45 Savings Banks (at the beginning of 2010), 43—which in terms of volume of total average assets represent 99.9% of the sector—have taken part or are currently taking part in some kind of consolidation process. As a result, the sector has gone from having a total of 45 entities with an average size of €29,440 million (December 2009) to being made up of 11 entities or groups of entities, with an average volume of assets of €89,550 million (March 2015).

Currently there are two savings banks that are Caixa Ontinyent and Caixa Pollença4.

The Spanish savings banks are members of the Spanish Confederation of Savings Banks (CECA), a credit institution formed in 1928 to act as the national association and financial institution of the Spanish savings banks. The “special foundations”, the central institutions of the IPSs, the instrumental banks through which the savings banks engage in their financial activity and the institutions whose financial business derives from a savings bank all form part of the CECA. The CECA aims to strengthen the position of the savings banks, it acts as a forum for strategic reflection for all savings banks and other member entities, it advises them and it provides them with competitive products and services.

2.2.4 Credit cooperatives

Credit cooperatives are credit institutions that combine the corporate form of a cooperative and the activity and status of a fully operational credit institution.

Their uniqueness and importance lies in the fact that they function as a nonprofit organization, since their members combine their funds to make loans to each other, with any excess revenues being returned to the members in the form of dividends.

Their key features are described below:

Basic regulations
  • State: Law 10/2014, of June 26, 2014, on regulation, supervision and solvency of credit institutions, Law 13/1989 on Credit Cooperatives, Royal Decree 84/1993 approving the Implementing Regulations for Law 13/1989 of May 26, 1989 on Credit Cooperatives, and Royal Decree 84/2015 of February 13, 2015 expanding upon Law 10/2014. Law 27/1999 on cooperatives applicable secondarily. Legislative Royal Decree 11/2017 of June 23, 2017.
  • Autonomous communities: Corporate / cooperative regulations.
Corporate purposeThey may perform all types of lending and deposit-taking operations and provide all the services permitted to banks and savings banks, provided they give priority to the financial needs of their members.
Minimum capitalEach member must have a holding of at least €60.01 in the capital.

No legal entity may hold more than 20% of the capital, unless it is a cooperative, in which case the holding cannot exceed 50% of the capital.

No individual may hold more than 2.5% of the capital of a credit cooperative.
Governing bodies
  • General Assembly: Each member is to have one vote, regardless of the member’s shares in the capital stock.

    However, if the bylaws so provide, the vote of the members may be in proportion to their contribution to the capital, to the activity pursued, or to the number of members of associated cooperatives; in this case, the bylaws must clearly indicate the criteria for such proportional voting.
  • Governing Board comprising at least five members, two of whom may be non-members.
  • General Manager, without governing functions, subordinated to the Governing Board.
  • All members of the Governing Board must be persons of good repute in business and professional terms, have the knowledge and experience required to perform their functions, and be committed to the good governance of the entity.
  • The requirements with respect to good repute, knowledge and experience also apply to general managers or persons holding similar positions, to those in charge of the internal control functions and to those holding other positions which play a key part in the day-to-day pursuit of the entity’s activities.
  • Registration of managers, directors or similar executives on the Register of Senior Officers.
Contributions
  • They are for an indefinite term.
  • Their remuneration is conditional on the existence of net income or sufficient unrestricted reserves to cover the remuneration.
  • Their redemption is subject to compliance with the solvency ratio.
Formation of credit cooperatives
  • It is up to the Bank of Spain to submit to the European Central Bank an authorization proposal for the formation of a credit cooperative.
  • Must be registered on the Special Register of the Bank of Spain.

Additional considerations regarding credit institutions:

  1. The regime governing significant holdings and changes of control at credit institutions.

    Any individual or legal entity that, acting alone or in concert with others, intends to acquire, directly or indirectly, a significant holding5 in a Spanish credit institution or to increase, directly or indirectly, the holding in that institution so that either the percentage of voting rights or capital held is equal to or greater than 20, 30 or 50 percent, or that, by virtue of the acquisition could control the credit institution, must give prior notice to the Bank of Spain in order to secure a statement of non-opposition to the proposed acquisition, indicating the amount of the expected holding and including all the information required by law. Likewise, any individual or legal entity that has taken a decision to dispose, directly or indirectly, of a significant holding in a credit institution, must first notify the Bank of Spain of such circumstance.

    It is the task of the Bank of Spain to assess proposed acquisitions of significant holdings and submit a decision proposal to the European Central Bank so that it can decide whether or not to oppose the acquisition.

    Furthermore, any individuals or legal entities that, acting alone or in concert with others, have acquired, directly or indirectly, a holding in a credit institution, so that the percentage of voting rights or of capital that they hold is equal to or greater than 5%, must give immediate written notice of such circumstance to the Bank of Spain and the credit institution in question.

    Similarly, any individual or legal entity that decides to cease to hold, directly or indirectly, a significant holding in a credit institution, must notify the Bank of Spain of such decision beforehand, indicating the shareholding percentage it intends to hold. It must also notify the Bank of Spain if it intends to reduce its significant shareholding in such a way that the percentage of voting rights or capital held by it falls to below 20, 30 or 50 percent, or results in the loss of control over the credit institution.

  2. Cross-border activities of credit institutions.

    With regard to the cross-border activities of credit institutions, the following may be noted:

    • A Spanish credit institution may operate abroad by opening a branch or under the freedom to provide services.
    • Credit institutions authorized in another EU Member State may engage in Spain, either by opening a branch or under the freedom to provide services, in activities that benefit from mutual recognition within the European Community.
    • Likewise, credit institutions not authorized in an EU Member State may provide services through a branch or under the freedom to provide services, but they will require prior authorization.

    In all cases, the credit institutions must fulfill a number of statutory requirements.

Furthermore, credit institutions may operate in Spain through representative offices. However, representative offices may not perform credit operations, collect deposits, or engage in financial intermediation, nor may they provide any other kind of banking services. They are confined to engaging in merely information-related or commercial activities regarding banking, financial or economic matters. However, they may promote the channeling of third-party funds, through credit institutions operating in Spain, to their credit institutions in their countries of origin, and serve as a medium to provide services without a permanent establishment (that is, under the freedom to provide services).

2https://www.bde.es/f/webbde/SGE/regis/ficheros/es/LIBRO_31122019.pdf

3As a result of the credit institution restructuring process, almost all the savings banks have agreed to separate their financial activities from their community welfare activities, so that today the community welfare activities are carried out by foundations and the financial activities by credit institutions (typically banks) owned by the savings banks.

4Source: CECA

5"Significant holding" means a holding in a Spanish credit institution that amounts, directly or indirectly, to at least 10% of the capital or voting rights of the institution. Where a holding makes it possible to exert a notable influence at the institution, it will also be considered a significant holding even if it does not amount to 10%.