The Banco de España has to approve or, where appropriate, require the necessary changes to be made to these plans, which must be implemented by 30 September, although the Banco de España may grant an extension of this deadline in the cases specified in the Royal Decree-Law. It is important to stress that the FROB is obliged to contribute the necessary capital to the banks which request it, as either a first or a subsequent option, to supplement or replace private capital. This contribution of government funds does not constitute, as some have argued, a nationalisation of banks, but rather exceptional and temporary support, since the  BIS central bankers’ speeches  5  FROB funds must be repaid or replaced by private capital as required by the Royal DecreeLaw. The participation of the FROB in this process enables an orderly entry of private investment in the savings bank sector. But what has been most effective to improve market confidence has been the very existence of the FROB as a backstop, assuring investors and lenders that, from the entry into force of the Royal Decree-Law, all Spanish banks are, de facto, operating with levels of core capital exceeding 8–10%. The entry of private capital will require savings banks to undertake a definitive and clear professionalisation of their management. This requirement is fortunate because it is a necessary condition for preventing a repeat of past events.
The markets appreciated that effort and, after the summer, Spanish banks were again able to issue debt on the international wholesale markets. However, Ireland’s sovereign debt crisis again increased the strains on the government debt markets and a fresh lack of confidence in the Spanish banking sector and misgivings as to the quality of its assets resurfaced. Those events highlighted the need for more rapid and far-reaching action to confront the difficulties facing a part of the Spanish banking system. Immediately, the Banco de España stepped up its transparency requirements for the asset portfolios on which doubts centred. Thus early this year all savings banks were obliged to make public their exposure to the real estate development sector, their doubtful assets, their standard exposures under surveillance and their provisioning levels, and to specify the type of collateral securing those exposures. Also, they were asked to publish information on their foreclosed assets and on their exposure to households through residential mortgages so that, although this is not an area of concern, the market could distinguish between risks which at times – unjustifiably – it treated similarly. Further to the recently ratified Royal Decree-Law, the Spanish Parliament has taken an additional step to strengthen bank solvency. Happily, it was understood that, while important, what had been achieved thus far was not sufficient and that it was necessary to take further measures to hasten the restructuring process.