Bank Restructuring in the Current Financial Crisis
Transitional and linked to the evolution of the financial crisis in which we currently find ourselves, has been published Decree-Law 9 / 2009 of June 26, on bank restructuring and strengthening the institutions’ own resources of credit , which came into force last June 27, 2009.
The sharp drop in economic activity caused by the crisis, has led to a financial situation which, compared to banks that can allow further address the crisis without public support, there are others in the coming months could see compromised its viability due to the interaction of the persistent problems of liquidity and funding, the relative deterioration of their assets, increase of the uncertainty and decline in their business.
For this reason, this RDL establishing mechanisms to ensure the interests of third parties and to reorganize and revive the troubled institutions, which try to restore confidence in the system and that involves the whole of the credit institutions. In short, it aims to safeguard the solvency to maintain the stability of the entire financial system.
The mechanisms referred to by the RDL are the restructuring and integration processes.
In the restructuring process can distinguish three phases:
1. Search private solution by the credit institution itself. (Phase normatively unregulated).
2. Measures to address weaknesses that affect the viability of credit institutions with the participation of the Deposit Guarantee Fund sector. (Private solution but orderly and regulated).
3. Restructuring involving the Fund Bank Restructuring (a body established by the RDL) and subject to the approval of the Bank of Spain.
The factual expressly stated in the art. 6 RDL and to adopt measures that can be applied will depend on the phase of the restructuring process in which we find ourselves. The assumption would be:
” A financial institution or group or sub-group of credit institutions present weaknesses in their economic and financial situation, depending on the development of market conditions, could jeopardize their viability and determine the desirability of initiating a process restructuring . “
The restructuring process may be initiated at the request of the credit institution or at the request of the Bank of Spain. In both cases, the credit institution must be submitted within 1 month a plan of action that specify some of the following actions to be taken to overcome the situation of doubtful solvency:
Ø Strengthen its assets and solvency.
Ø To facilitate its merger or takeover by another institution of recognized solvency.
Or transfer all or part of its business or other units of the same banks.
The action plan must be approved by the Bank of Spain and may include modifications or additional measures as deemed necessary.
On the other hand, the intervention of Bank Restructuring Fund occurs when once we are in fact the assumption contained in the said art. 6, giving also some of the cases referred to in art. 7 RDL (non-submission of action plan on time, no viable plan presented, etc.).
Finally, this RDL includes the possibility of credit institutions resident in Spain, where no circumstances envisaged in art. 6, to strengthen its capital by issuing convertible preferred shares to be acquired by Bank Restructuring Fund.
To do this, the entities in question develop an integration plan to be approved by the Bank of Spain and Bank Restructuring Fund, prior to the effective acquisition of the securities referred to above and submit to the Minister of Economy and Finance a financial report detailing the financial impact of this acquisition on the funds under the State Budget, which may oppose a well-reasoned, within 10 days.
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Tags: Bank Restructuring, credit institution, Current Financial, Financial Crisis, financial system