Miguel Fernández Ordóñez: Recent decisions adopted by the Bank of Spain Testimony of Mr Miguel Fernández Ordóñez, Governor of the Bank of Spain, before the Parliamentary Committee on Financial Affairs, Madrid, 2 April 2009. *  *  *  Honourable Members of Parliament, Let me begin this testimony by thanking you for the opportunity to explain the recent decisions adopted by the Banco de España as supervisor of the banking system in relation to Caja de Ahorros de Castilla La Mancha (CCM). Last Saturday, the Executive Commission of the Banco de España adopted the decision to replace the governing bodies of the institution with three provisional central bank nominees. On Sunday, 29 March 2009, the government, in an extraordinary meeting of the Council of Ministers, passed a Royal Decree-Law authorising guarantees by the Treasury for a maximum amount of € billion backing the loan the Banco de España could grant to CCM. These two decisions have allowed CCM to continue operating normally and to meet all its payment obligations and commitments. This solution was adopted once a "private" solution to CCM's problems under the Savings Bank Deposit Guarantee Fund had been deemed inviable. As you know, CCM has held talks (exploratory in some cases, more advanced in others) with other savings banks with a view to participating in a merger process giving rise to a new economically and financially viable institution. In this connection, assistance from the Savings Bank Deposit Guarantee Fund had been envisaged to smooth the process.
Spain has followed the lead of the developed countries, and you should rest assured that CCM will meet all its commitments to depositors and other creditors. Second, the Maastricht Treaty prevents central banks from extending emergency liquidity assistance to an ailing institution, such as CCM, without the appropriate collateral. Given the amounts that might have to be committed, the Spanish Treasury had to provide explicit guarantees to the central bank, so as not to infringe the Treaty’s prohibition on central banks extending "monetary financing" to public Treasuries. *** Having explained the substance of and the reasons behind the urgent replacement of CCM’s directors, allow me to offer greater details on the Banco de España’s past supervisory measures in relation to CCM and its current situation. Before that, however, I should highlight what is a primordial starting point: CCM is a credit institution with a positive net worth. That is to say, and in the vernacular of the press, the institution has no "hole" in its balance sheet. Yet this does not mean it is not facing serious problems, the cause of which must be sought in an inappropriate management of risk and a forceful business expansion – especially in the real estate sector – funded largely through resort to the international bond markets, generating sizable imbalances. Past experience shows that these credit expansion policies are very dangerous if unaccompanied by the related risk control measures since, generally, they usually entail a relaxing of credit standards. Responsibility for these decisions falls on CCM's previous directors.