Fernando Restoy: Challenges for banking resolution Closing remarks by Mr Fernando Restoy, Deputy Governor of the Bank of Spain and Chairman of the FROB (The Fondo de reestructuración ordenada bancaria – Fund for Orderly Bank Restructuring), at its conference, Madrid, 4 June 2014. * 1  *  *  Introduction  Good evening. I welcome this opportunity to share with you some thoughts on banking resolution. I cannot think of a more qualified audience to discuss this matter than that invited by the FROB for this conference, with representatives of competent authorities in the field, among others. I will organise my remarks as follows. First, I will briefly describe how I see the general global framework for banking resolution established after the crisis. Next, I will review the special features of the European case. And finally, I will concentrate on the lessons to be drawn from the Spanish experience, with a special reference to issues relating to the institutional design of banking resolution. 2  The global framework for banking resolution after the crisis  We all know that banking resolution has not achieved the status of a well-defined policy area until very recently. Actions taken by authorities in relation to failing or likely-to-fail institutions have followed a discretionary case-by-case approach, particularly with respect to the availability of public funds to protect banks’ creditors.
A good, albeit somewhat extreme, example of the scope of the new resolution powers took place very recently when a very small cooperative bank reached the point of non-viability. That bank proved unable to find by itself a suitable solution. As a consequence, the Banco de España put the institution into resolution and appointed the resolution fund (FROB) as an administrator. The FROB then took full control of the institution and sold it – through an express auction – to another cooperative bank. The whole process was conducted in roughly 24 hours and entailed no cost for depositors, creditors or even holders of capital instruments. All resolution actions have been taken with sufficient care, particularly with respect to the fulfillment of the no-creditor-worse-off principle. Indeed, so far we have faced very limited litigation, and no decision has been successfully challenged to date in the courts of justice. I believe that the recent Spanish experience may offer some insight into issues aired in the ongoing debates in the European Union and the rest of the world. First, as I said, the Spanish bank restructuring process was conducted without a clear European resolution framework. Yet, as in all cases in which Member States offer support to weak institutions, resolution and restructuring plans had to be submitted to the Directorate General for Competition of the European Commission to clear compliance with EU State Aid  BIS central bankers’ speeches  3  Rules.