Annual Report 2014 Global growth The regulatory environment in the financial industry Unique banking model A new environment for the financial industry Transformation journey Business organization chart and structure Responsible Business Plan


The regulatory environment in the financial industry

Single Supervisory Mechanism: main aspects and assessment of the first year  

The Single Supervisory Mechanism (SSM) was implemented on November 4, 2014. This is a basic pillar of banking union and a milestone on a scale similar to the launch of the single currency. It is one of the world's largest banking supervisors, with more than €20 trillion in assets under its direct supervision, around 80% of total assets in the euro zone. It will also take part in the indirect supervision of more than 3,500 banking groups. Thus, all banks of a certain size in the euro zone will be supervised in a highly standardized way and under the same regulatory framework.

The SSM is already a fully functioning reality with many achievements. Indeed, in just over a year, the supervision methodology has been developed and the required resources have been allocated. This new methodology, the Supervisory Review and Evaluation Process (SREP), is not a mechanical process, but rather also takes into account qualitative aspects. Moreover, it is a holistic and prospective process whereby the supervisor seeks to obtain a broader view of the institution, beyond the financial information. The main pillars of the SREP are: 

  • Internal governance and risk management. Among other things, this pillar includes a thorough assessment of the bank's organizational structure, making sure that the decision-making processes are suitable and that the members of the boards of directors fulfill the requirements for adequately performing their duties. This aspect is and will continue to be pivotal for the SSM. It should be noted that there is some diversity in the governance models within the European Union, and this should be taken into account when defining best practices, so that no single model prevails, but rather the best of each.
  • The business model analysis assesses the capacity to generate earnings over twelve months (viability) and three years (sustainability). This is one of the aspects that raises the most questions from a practical point of view, since there are as many business models as financial institutions, without one of them necessarily being an economically superior model.
  • The last two pillars, liquidity and capital, analyze credit or market risk and funding risk, among other aspects. In these areas there are still discrepancies in the level of implementation of the regulations in each country that make full standardization or comparability impossible. However, the European authorities are laying the foundations for achieving convergence in a reasonable period of time.

The assessment of the first supervision exercise under the SSM is clearly positive, although a constructive dialog needs to be maintained with the institutions and with the market in order to better understand the supervisor's concerns and priorities and, of course, the supervision methodology itself.

The assessment of the first supervision exercise under the SSM is clearly positive

Status of the regulatory reforms

Completion of the regulatory reform driven by the G-20 following the outbreak of the financial crisis has continued in 2015. A vital step has been taken for completing the resolution framework for global systemically important banks (G-SIBs) with the approval in November of the minimum total loss-absorbing capacity requirements (TLAC). Progress has also been made in the review of the global capital framework (Basel III), particularly as regards the methods for calculating the minimum requirements. In addition, the implementation of the agreed reforms, which involve greater capital and liquidity requirements and boost the transparency and governance of banking institutions, has made significant progress in most jurisdictions and strengthened the banking system. However, the effect of this global reform on economic activity is drawing increasing interest, as there is a risk that it may significantly restrict economic growth.

The regulatory reform driven by the G-20 is almost completed and its implementation has substantially strengthened the banking system

The advances made in the European banking union have resulted in much closer integration of the euro zone countries. First, the SSM has completed its first year of operation, as has just been mentioned. Second, the new resolution authority has been created in Brussels, with its accompanying Single Resolution Fund. Both will be fully operational in 2016. In addition, the European Commission has taken a decisive step to complete the banking union with its legislative proposal of November 24, which aims to move gradually toward a European Deposit Insurance Scheme (EDIS) in Europe, culminating in 2024 with a centrally-managed common fund (DGF).

Stages toward a full European deposit guarantee fund​​

In Europe, decisive steps have been taken to strengthen and complete the banking union



Full European DGF

Coverage only for excess on the DGF* capacity and subject to maximum levels.

Coverage from the first euro, but only partial, increasing gradually over time.

Starting in 2024
Full coverage.

* The DGF coverage refers to the funds needed to cover the target level set in the DGF Directive (0.8% of the deposits covered in 2024).​

On September 30, the European Commission published the action plan for building the capital markets union with the aim of moving toward greater integration and efficiency of those markets and facilitating access to them by removing the existing barriers, so it can lead to better funding for economic activity (SMEs, infrastructures, R&D, etc.). 

This is an ambitious long-term project (it extends at least until 2019) which still needs to be developed and could require the harmonization of aspects such as the insolvency laws or the accounting criteria applied in the different jurisdictions. 

The new project for capital markets union will strengthen the diversification of sources of funding in Europe

On November 24, the European Banking Authority (EBA) published the results of the transparency exercise conducted, which covers 70% of banking assets in the European Union. These results show the enhanced resilience of the banking sector compared with the previous year. Capital positions have been reinforced, mainly through the withholding of profits and the issuance of capital instruments. Capital ratios reach levels well above the minimum regulatory requirements.

The EBA's transparency exercise shows that banks are better capitalized

​As regards the Spanish regulatory framework, Spanish transposition of the European solvency regulations (CRD IV-CRR) was completed in 2015 through Royal Decree-Law (RDL) 84/2015, which implements Act 10/2014 on the Organization, Supervision and Solvency of Credit Institutions.

In addition, two directives approved in Europe in 2014 have been implemented in Spain, the Bank Recovery and Resolution Directive and the Directive on Deposit Guarantee Schemes. This has been completed through Act 11/2015, on the recovery and resolution of credit institutions, and the implementing Royal Decree (RD) 1012/2015. These measures substantially reinforce the Spanish framework for the resolution of banking institutions and designate the authorities responsible in this area (Bank of Spain for preventive tasks and the Fund for Orderly Bank Restructuring –FROB by its acronym in Spanish– for resolution execution). One key element of the resolution framework is that it is a bank's creditors, and not the taxpayers, who will have to bear the recapitalization costs in the event of resolution. To this end, minimum requirements for bail-inable liabilities (MREL) will be established for Spanish and European banking institutions starting in 2016, insofar as they implement the directive.

The Spanish deposit guarantee system has also been amended to harmonize it with that of other European countries, as regards both the contributions to be made ex-ante by the banking institutions, which will be sensitive to the risk of each bank, and the rights and collection times for depositors in the event of a bank's liquidation. 

The Spanish regulatory framework has been adapted to European directives and regulations in the planned timeframes