Royal Decree-Law 16/2011, of October 14, creating the Deposit Guarantee Fund for Credit Institutions

OFFICIAL STATE GAZETTE
No. 249 Saturday, October 15, 2011 Sec. I. Page 107985
I. GENERAL PROVISIONS
HEAD OF STATE
16173 Royal Decree-Law 16/2011, of October 14, creating the Deposit Guarantee Fund for Credit Institutions.
I
Over the last thirty years, deposit guarantee systems have become established in the European environment as one of the indispensable elements to guarantee the confidence of savers and depositors in the banking system as a whole. In Spain, the early creation in 1977 of the first Deposit Guarantee Funds in Banking Establishments and Savings Banks, later joined by that for Credit Cooperatives, through a system of prior or ex ante contributions, constituted at the same time a symptom of the evolution of our financial system and an impulse for its modernization, in a context of crucial social, political and economic changes in our recent history. Subsequent reforms of that first guarantee system, carried out over three decades, are understood today, with due perspective, as singular milestones that have accompanied the progressive development, in complexity, capacity and volume, of our financial system. A first moment of review of the system took place in the early eighties, a few years after its creation, since although the funds were perceived as a valuable instrument to address the problems of the banking system, it was found that the legal and economic complexity of the crisis of a banking establishment made it convenient to expand the possibilities of action of the funds, so that their purpose was not simply to guarantee deposits in case of suspension of payments or bankruptcy of an entity, but alternatively they could contribute to strengthening the solvency and functioning of the entities, ultimately avoiding an eventual, and possibly more costly, payment of deposits. From that moment, the Spanish deposit guarantee funds have maintained as a second hallmark – along with the ex ante contribution – their double objective or function: on the one hand, to guarantee deposits in money (and later also in securities) constituted in credit institutions; and, on the other, to carry out those actions necessary to strengthen the solvency and functioning of entities in difficulties, in defense of the interests of depositors and the Fund itself. In short, this double function is identified with an immediate and eventual objective, the guarantee of depositors' savings, and a mediate and permanent objective, the maintenance of the stability of the country's financial system, through the confidence of depositors. Subsequently, after the role played in benefit of financial stability in the banking crisis of the late seventies and early eighties, the double function of the funds will consolidate them as an indispensable element of security of our financial institutions, along with regulation and financial supervision. A second moment or rather stage of review of our deposit guarantee system took place from the mid-nineties, directly related to our participation in the European construction process and, more specifically, with financial integration considered essential for the achievement of an internal market. Thus, Royal Decree-Law 12/1995 and its implementing
regulations incorporated into Spanish law Community Directive 94/19/CE on deposit guarantee schemes, whose main milestone was the harmonization of a minimum level of deposit coverage – 20,000 euros – throughout the European Union. Much later, in 2009, this level reached the current figure of 100,000 euros as minimum and maximum deposit coverage for the 27 Member States of the European Union. It can be said, therefore, that in this second stage of review of cve: BOE-A-2011-16173

OFFICIAL STATE GAZETTE
No. 249 Saturday, October 15, 2011 Sec. I. Page 107986 our guarantee system, the indispensable element of the European context appears: financial integration inexorably leads to the gradual integration of the system's safety nets. In conclusion, in these more than thirty years of history of the Spanish deposit guarantee system, of its three characteristic features or hallmarks, the first two, its double function of deposit guarantee and entity reinforcement and its constitution as an ex ante endowment fund, are strongly consolidated, while the third of them, its insertion into a pan-European safety net, appears as a necessary destiny within a harmonization process not yet finalized. II With this historical background, the present royal decree-law constitutes a third milestone in the review of the regulation of the Spanish deposit guarantee system. Like the previous ones, this review is not alien to the context and evolution of our financial system, but, on the contrary, takes place at the culmination of the most important financial restructuring in our democratic history. After two years of structural reforms, whose cornerstones are Royal Decree-Law 9/2009, of June 26, on banking restructuring and strengthening of credit institutions' own resources, Royal Decree-Law 11/2010, of July 9, on governing bodies and other aspects of the legal regime of Savings Banks and Royal Decree-Law 2/2011, of February 18, for the strengthening of the financial system, we are at a culminating moment in which this royal decree-law operates as a closing element and guarantee of internal coherence of the set of reforms. Once the recapitalization of the banking sector has been completed in accordance with the provisions of Royal Decree-Law 2/2011, of February 18, for the strengthening of the financial system, and the sub-sector of savings banks has been restructured, which in the last year have gone from 45 to 15 entities, increasing the average volume of assets of the entities from 28,504 million euros to 85,512 million and equating their governance structure to that of listed banks mainly through their legal transformation into indirect exercise savings banks, the Government considers it essential to complete the reforms by adapting the regulation of the Spanish deposit guarantee system to the new reality of the sector. There are two main objectives of this Royal Decree-Law which culminates the recapitalization and restructuring of the financial system while maintaining its essential features:
– The unification of the hitherto three deposit guarantee funds into a single Deposit Guarantee Fund for Credit Institutions, which maintains the functions and characteristic features of the three funds it replaces.
– The updating and strengthening of the second function of the system: the reinforcement of the solvency and functioning of entities, also known as the resolution function, in order to guarantee the flexible action of the new unified Fund.
Both objectives contribute to the essential principle that both international financial bodies and the Government of the nation have placed at the base of public intervention in the face of the financial crisis: that the financial sector itself assumes the costs occasioned by its sanitation and recapitalization, so that the set of reforms does not entail costs for the public treasury, ultimately, for the taxpayer.
III
The present royal decree-law consists of three titles, divided into thirteen articles, one repealing provision, four transitional provisions and three final provisions.
Title I encompasses as general provisions the defining elements of the new fund, elements that fundamentally replicate those provided to date for the three cve: BOE-A-2011-16173

OFFICIAL STATE GAZETTE
No. 249 Saturday, October 15, 2011 Sec. I. Page 107987 extinct funds: these are fundamentally the norm of creation and subrogation of the Fund in the legal position of the dissolved funds, the nature and private law legal regime and the rules on assets and government organization, through the Fund's Management Committee composed of representatives of the entities and the Bank of Spain.
For their part, Titles II and III are dedicated respectively to developing the two functions of the Fund: the deposit guarantee and actions to reinforce the solvency and sanitation of entities. On the one hand, it is about providing greater legal certainty to sensitive legislation that was dispersed until now in a plurality of norms; on the other hand, it is about increasing the capacity and flexibility of action of the Fund in terms of entity capital reinforcement in such a way that the sector itself is in a position to support the end of the process with the greatest efficiency. Finally, the final provisions provide for the express repeal of a lengthy set of norms regulating the guarantee funds to date, in order to achieve a greater degree of legal certainty. For their part, the transitional provisions are aimed at guaranteeing a simple and orderly transition from the previous system based on three sectoral funds to the new single Fund, temporarily regulating the composition of the Management Committee and the contribution regime until the establishment of a system based on the risk profile of each entity in the European Union as a whole. Additionally, the validity of Royal Decree 2606/1996 and other implementing regulations is explicitly stated insofar as they are not contrary to this royal decree-law. The adoption of the measures contemplated in this Royal Decree-Law is essential to reinforce confidence in our financial system and culminate its recapitalization and restructuring process. Indeed, the application of Royal Decree-Law 2/2011, of February 18, for the strengthening of the financial system has reached its practically full development, so it is precisely at this moment that the reorganization of the deposit guarantee system is opportune and unavoidable, in order to activate all available financial resources. Additionally, the special sensitivity of the matter makes it necessary to avoid any eventual uncertainty derived from the process of modifying the regulations, as occurred on previous occasions when the deposit guarantee systems were reformed, in the years 1980, 1982 and 1995, respectively. It is for all these reasons that the adoption of such measures requires resorting to the procedure of the Royal Decree-Law, fulfilling the requirements of Article 86 of the Spanish Constitution regarding its extraordinary and urgent necessity. By virtue thereof, making use of the authorization contained in Article 86 of the Spanish Constitution, at the proposal of the Vice-President of the Government for Economic Affairs and Minister of Economy and Finance, and after deliberation by the Council of Ministers at its meeting on October 14, 2011, I hereby order:
TITLE I
General Provisions
Article 1. Purpose.
The purpose of this royal decree-law is the creation of the Deposit Guarantee Fund for Credit Institutions.
Article 2. Creation of the Deposit Guarantee Fund for Credit Institutions.

1. The Deposit Guarantee Fund for Credit Institutions, hereinafter the Fund, is hereby created, for the purpose of guaranteeing deposits in credit institutions up to the limit provided for in this royal decree-law. Likewise, the Fund shall have the purpose of carrying out actions that strengthen the solvency and functioning of an entity in difficulties, in defense of the interests of depositors, the Fund itself and the system as a whole composed of the credit institutions adhering to it.
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2. The Deposit Guarantee Fund for Savings Banks, the Deposit Guarantee Fund for Banking Establishments and the Deposit Guarantee Fund for Credit Cooperatives are declared dissolved, their assets being integrated into the Deposit Guarantee Fund for Credit Institutions in accordance with the provisions of Article 6, the latter being subrogated to all the rights and obligations of the former.
Article 3. Nature and legal regime.

1. The Fund shall have its own legal personality, with full capacity for the development of its purposes, under private law and without being subject to the rules governing public bodies and state-owned commercial companies.
2. The tax regime of the Fund shall be as follows:
   a) It shall be exempt from Corporate Income Tax in accordance with the provisions of Article 9.1.c) of the revised text of the Corporate Income Tax Law approved by Royal Legislative Decree 4/2004, of March 5. b) It shall be exempt from indirect taxes that may accrue due to its constitution, its operation and the acts or operations it carries out in the fulfillment of its purposes, including those that may accrue as a consequence of the dissolution of the three pre-existing funds, the integration of their assets into those of the Fund and the subrogation of the latter in all its rights and obligations in accordance with the provisions of this royal decree-law. Likewise, the exemptions in force at the entry into force of this royal decree-law on operations subject to indirect taxes whose amount must be passed on to the Fund by virtue of internal or Community law provisions regulating them shall be maintained.
   Article 4. Functions.
   The functions of the Fund shall be the deposit guarantee and the reinforcement of the solvency and functioning of credit institutions, in accordance with the provisions of Titles II and III of this royal decree-law and its implementing regulations, respectively.
   The Fund shall perform such functions in defense of the interests of depositors, the Fund itself and the system as a whole composed of the credit institutions adhering to it.
   Article 5. Adhering entities.
3. All Spanish credit institutions shall compulsorily belong to the Deposit Guarantee Fund for Credit Institutions provided for in this royal decree-law.
   The obligation established in the preceding paragraph shall not apply to Financial Credit Establishments, nor to the Official Credit Institute.
4. Branches of foreign credit institutions operating in Spain shall be incorporated into the Fund in the cases and manner determined by regulation.
5. Credit institutions that do not duly make their contributions to the Deposit Guarantee Fund for Credit Institutions or fail to comply with any of their obligations towards it, may be excluded from the Fund, once the measures adopted to ensure their compliance have failed. The Minister of Economy and Finance shall be competent to agree on the exclusion, at the proposal of the Bank of Spain and after a report from the Fund's Management Committee.
   Article 6. Assets.
6. The assets of the Deposit Guarantee Funds for Savings Banks, Banking Establishments and Credit Cooperatives shall be integrated into the Deposit Guarantee Fund for Credit Institutions with effect from the entry into force of this royal decree-law. The Fund shall be subrogated to all the rights and obligations of the dissolved funds.
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OFFICIAL STATE GAZETTE
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2. The Fund shall be financed, under the terms determined by regulation, with annual contributions from the credit institutions integrated into it, the amount of which shall be up to a maximum of 2 per thousand of the deposits to which its guarantee extends, depending on the type of credit institutions.
When the uncommitted assets of the Fund reach negative values, the Management Committee may agree, by a two-thirds majority of all its members, to make levies among the adhering entities. These levies shall be distributed according to the calculation basis of the contributions, and their total amount may not exceed the amount necessary to eliminate that deficit.
Contributions to the Fund shall be suspended when the uncommitted equity fund in operations specific to the Fund's purpose equals or exceeds 1 per 100 of the deposits of the entities affiliated with it.
Article 7. Management Committee.

1. The Fund shall be governed and administered by a Management Committee composed of twelve members, six designated by the Bank of Spain and six by the representative associations of the adhering credit institutions, under the terms provided by regulation.
2. The representatives of the Bank of Spain shall be designated by its Executive Committee. One of them shall be the Deputy Governor who shall hold the Presidency of the Committee with a casting vote in case of a tie in the voting of agreements to be adopted. His vacancy, absence or illness shall be covered, after designation by its Executive Committee, by one of the titular representatives of the Bank of Spain, who shall in turn be replaced in the Management Committee by one of the alternate members.
   The representatives of the adhering entities shall be designated two by the representative associations of Banks, two by those of Savings Banks and two by those of Credit Cooperatives, under the terms provided by regulation.
   The designated persons shall be persons of recognized commercial and professional honorability and shall possess adequate knowledge and experience for the exercise of their functions. In determining the aforementioned conditions, the criteria contemplated in Article 2 of Royal Decree 1245/1995, of July 14, on the Creation of Banks, Cross-border Activity and other matters related to the Legal Regime of Credit Institutions, shall be taken into account.
   By the same procedure, two alternate representatives of the Bank of Spain and one for each of those designated by the adhering entities shall be appointed, who shall replace the titular members in case of vacancy, absence or illness. In the case of representatives of entities, they must also be replaced at the indication of the President of the Fund's Management Committee, when the Management Committee is going to deal with issues that directly affect an entity or group of entities with which they are linked as an administrator, director, labor, civil or commercial contract or any other relationship that could impair the objectivity of their decisions, determining their abstention.
3. The term of office of the members of the Management Committee shall be four years, renewable.
4. The representatives of the credit institutions adhering to the Fund shall cease their office for the following reasons:
   a) Expiration of their term of office. b) Resignation. c) Removal agreed by the Management Committee for serious breach of their obligations, permanent incapacity to exercise their function or supervening lack of honorability.
   The representatives of the Bank of Spain shall cease, in addition to the same reasons provided in the preceding paragraph, by agreement of its Executive Committee. cve: BOE-A-2011-16173

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5. For the validity of the meetings of the Management Committee, the attendance of half of its members shall be necessary. Its agreements shall be adopted by a majority of its members, the member holding the presidency having a casting vote.
However, a two-thirds majority shall be required to agree on the making of levies, in accordance with the provisions of section 2 of Article 6, and for the measures provided for in Article 11.
6. The Management Committee shall establish its own operating rules for the proper exercise of its functions.
TITLE II
Deposit Guarantee Function
Article 8. Deposit Guarantee.

1. The Fund shall pay its holders the amount of guaranteed deposits under the terms provided by regulation when any of the following events occur:
   a) That the entity has been declared or is judicially deemed to have requested the declaration of insolvency proceedings; b) That, having occurred non-payment of deposits, the Bank of Spain determines that the entity is unable to return them immediately for reasons directly related to its financial situation. The Bank of Spain shall make such determination as soon as possible and, in any case, must decide within the maximum period determined by regulation, after having verified that the entity has not managed to return due and payable deposits.
2. The Fund shall pay the holders of securities or other financial instruments entrusted to a credit institution the guaranteed amounts when any of the following events occur:
   a) That the credit institution has been declared or is judicially deemed to have requested the declaration of insolvency proceedings, and these situations entail the suspension of the return of the securities or financial instruments; however, payment of these amounts shall not proceed if, within the period provided by regulation for initiating their disbursement, the aforementioned insolvency proceedings are lifted. b) That, having occurred the non-return of the securities or financial instruments, the Bank of Spain determines that the credit institution is unable to return them in the immediate future for reasons directly related to its financial situation. The Bank of Spain shall make such determination as soon as possible and, in any case, must decide on the appropriateness of the compensation within the maximum period determined by regulation.
3. All payments made by the Fund by virtue of the two preceding sections shall be made in euros, either in cash or by another generally accepted means of payment, valuing the securities or other financial instruments for this purpose in the manner determined by regulation.
   By the mere fact of payment, the Fund shall be subrogated to the rights of the creditor or investor corresponding to the amount paid, the document evidencing the payment being sufficient title.
   In the event that the securities or other financial instruments entrusted to the entity were returned by it after payment of a guaranteed amount based on section 2 of this article, the Fund may recover the amount paid, totally or partially, if the value of those to be returned were greater than the difference between the value of those entrusted to the entity and the amount paid to the investor, being empowered, for this purpose, to dispose of them in the amount that is appropriate, according to the procedure and criteria of attribution and valuation that are established by regulation. cve: BOE-A-2011-16173

OFFICIAL STATE GAZETTE
No. 249 Saturday, October 15