MEMORANDUM ON THE DECISIONS ADOPTED BY THE COUNCIL
OF MINISTERS OF THE GOVERNMENT OF SPAIN ON 10 AND 13 OCTOBER 2008
REGARDING THE FINANCIAL SYSTEM
In response to the serious financial difficulties that the global
economy is currently facing, the Economic and Financial Affairs Council
of the European Union adopted several recommendations on 7 October 2008
regarding measures to be taken to promote the stability of the financial
system with the purpose of coordinating the different policies of the
Member States in this area.
Following the recommendations, and taking into account initiatives
taken by other Member States, the Council of Ministers of the Spanish
government approved several measures at its meeting held on 10 October
2008 aimed at reinforcing the confidence of depositors and investors in
Spanish credit entities and investment services firms and facilitating
the funding of companies and individuals. In particular, the measures
taken were (i) increasing the maximum guaranteed amount by the Deposit
Guarantee Fund and the Investment Guarantee Fund and (ii) creating the
Fund for the Acquisition of Financial Assets of credit entities and
securitisation funds.
Moreover on 12 October 2008 at an extraordinary summit held in Paris,
the Heads of State and Government of Euro zone countries agreed on a
series of additional measures aimed at stimulating the interbank money
market and providing liquidity to credit entities and facilitating their
funding on a medium term basis as well as strengthening their capital
structure. To that end, at an extraordinary meeting held on 13 October
2008, the Council of Ministers adopted the relevant resolutions to
implement the measures agreed upon at the summit held in Paris. The
measures included (i) the issuance of a state guarantee for funding
transactions of Spanish credit entities and (ii) in certain
extraordinary circumstances, the subscription of securities of Spanish
credit entities requiring a strengthening of their equity.
The following sections describe each of the measures adopted by the
Council of Ministers of the Spanish government during their meetings
held on 10 and 13 October 2008.
1. Raising of the
amount guaranteed by the Deposit Guarantee Fund and the Investment
Guarantee Fund
At its meeting held on 10 October 2008, and in order to maintain and
increase the confidence of depositors and investors in Spanish credit
entities and investment services firms, the Spanish government approved
increasing the maximum amount guaranteed by the Deposit Guarantee Fund
and the Investment Guarantee Fund up to one hundred thousand euros per
account holder and entity. This measure is applicable to deposits of
cash or securities in credit entities and investment services firms
authorized to operate in Spain, including those that are subsidiaries of
foreign credit entities or foreign investment services firms as well as
the branches of such entities which are adhered to these funds, but not
to the branches of foreign entities not adhered thereto nor to entities
taking deposits or providing investment services on a cross-border basis.
The measure was implemented by the enactment of Royal Decree
1642/2008 of 10 October amending article 7.1 of Royal Decree 2606/1996
of 20 December on the Deposit Guarantee Fund of Credit Entities and
article 6.1 of Royal Decree 948/2001 of 3 August on compensation schemes
for investors in relation with the amounts guaranteed under those
articles. Royal Decree 1642/2008 entered into force on 11 October 2008,
the date of its publication in the Spanish Official Gazette.
2. Creation of the Fund for
the Acquisition of Financial Assets
On 10 October 2008, with the purpose of encouraging funding for
individuals and companies resident in Spain, the Spanish government also
approved the creation of the Fund for the Acquisition of Financial
Assets (Fondo para la Adquisición de Activos Financieros, “FAAF”).
The FAAF is created on a temporary basis and will cease to exist when
the financial market conditions that led to its creation disappear.
The FAAF will be governed by the criteria of objectivity,
profitability, transparency, efficiency and diversification and will
invest in financial assets of the highest quality issued by credit
entities and securitisation funds backed by loans granted to individuals,
companies and non-financial entities. The legislation does not clarify
whether the branches of foreign entities operating in Spain will be also
eligible to participate in the asset purchase program to be developed by
the FAAF. The FAAF will favour the acquisition of assets backed by new
credit, meaning that granted after 7 October 2008.
The FAAF will be allocated thirty billion euros, which may be
increased to a maximum of fifty billion euros. The first transactions
may be carried out in the last quarter of 2008, for which purpose an
extraordinary credit for this year has been approved amounting to ten
billion euros which may be increased to thirty billion euros, to be
financed through the issuance of public debt.
The administration, management and governance of the FAAF will be
headed by the Ministry of Economy and Finance through the fund’s
Governing Council and its Executive Committee. The Governing Council
will be the body responsible for establishing FAAF’s investment
guidelines, monitoring and evaluating its activity as well as for
deciding on the application of income obtained from its assets and the
result of the maturity or sale of such assets. The Executive Committee,
on the other hand, will manage the FAAF and will decide on investments
with the advice of a technical committee.
To carry out its transactions, the FAAF will employ auction
procedures for the selection of assets and will carry out the relevant
acquisitions in accordance with the usual mechanisms of the financial
markets.
The management of FAAF will be subject to both the control of the
General State Comptroller (Intervención General de la Administración
del Estado) and parliamentary control through the evaluation of the
management report of the FAAF which will be sent quarterly to the
Economy Committee of the Spanish Congress.
The rules governing the operation of the FAAF are contained in Royal
Decree-Law 6/2008 of 10 October which creates the Fund for the
Acquisition of Financial Assets and will enter into force on the day
following its publication in the Official Spanish Gazette, which
occurred on 14 October 2008. Thereafter, the legislation will be subject
to the corresponding parliamentary validation procedure. However, it is
not foreseeable that the FAAF begins to operate effectively until the
Minister of Economy and Finance issues the corresponding developing
regulations governing its functioning and the criteria for the selection
of assets eligible for purchase are made public.
3. State guarantee on the
issuance of bank debt
On 13 October 2008, with the purpose of restoring confidence and the
efficient functioning of the interbank money market, the Spanish Council
of Ministers authorised the granting of state guarantees on financial
transactions carried out by Spanish credit entities. Spanish
subsidiaries of foreign entities may also benefit from this type of
guarantees provided that they carry out significant activities in Spain,
whilst Spanish branches of foreign credit entities are excluded from the
scope of this measure. Indebtedness eligible for guarantee includes
commercial paper, bonds and notes admitted to trading on official
Spanish secondary markets with a maturity of up to five years as well
as, where appropriate, interbank deposits as part of a concerted and
coordinated plan between the governments of the Eurozone.
Credit entities must meet the requirements established by the
Minister of Economy and Finance to have access to these State guarantees,
including such special solvency conditions as the Bank of Spain may
suggest.
The deadline for the issuance of state guarantees ends on 31 December
2009. In 2008, state guarantees may be granted for a maximum amount of
one hundred billion euros, which will be granted by the Minister of
Economy and Finance in accordance with the provisions of the General
Budget Law and will accrue a fee in consideration for the risk assumed
by the Kingdom of Spain.
This measure, together with that described in section 4 below, has
been implemented by Royal Decree-Law 7/2008 of 13 October on urgent
measures on financial matters concerning the Concerted Plan of Action of
the Eurozone countries which entered into force on 14 October 2008,
coinciding with the date of its publication in the Official Spanish
Gazette, without prejudice to its corresponding parliamentary validation
procedure and the approval of the appropriate implementing regulations.
4. Recapitalisation of
distressed credit entities
At its meeting on 13 October 2008 the Spanish government authorised
the Minister of Economy and Finance until 31 December 2009 to purchase
securities, including preferred shares and cuotas participativas
(an equity security available only to Spanish savings banks which does
not provide the holder with the right to vote on corporate matters at
the entity’s general meeting) issued by Spanish credit entities which
require to strengthen their regulatory capital upon the request of such
entities. Purchase agreements will be finalised following the issuance
of a report by the Bank of Spain. The securities that the Government
acquires will not be subject to the limitations established by the
legislation for regulatory capital purposes.
This measure, together with that described in section 3, has been
implemented by Royal Decree-Law 7/2008.
Madrid, October 2008
