FROB's first years
2009-2014: Fund for Orderly Bank Restructuring
To explain the origins of the FROB we must go back to the international financial crisis at the end of the first decade of the 21st Century. The Spanish banking system was not immune to it, and it meant, from its beginnings, a drastic tightening of access to market funding and liquidity, to which it was adds a fall in the value of assets, particularly real estate assets. All of this threatened the stability of the Spanish banking sector, which required strong public intervention in order to repair the loss in confidence in the banking system and led to the adoption of exceptional measures within the framework of a coordinated response of the European Union.
Thus, FROB was created by Royal Decree Law 9/2009, of 26 June, on bank restructuring and the strengthening of own funds of credit institutions, aimed at increasing the strength and solvency of the Spanish banking system through two essential lines of action: managing the processes of restructuring banks and strengthening their own funds when undertaking integration processes. This meant the introduction of the new Spanish model of public management of banking crises.
Royal Decree Law 24/2012, of 31 August, on credit institution restructuring and resolution was then approved and entered into force. It would later be transformed by Parliament into Law 9/2012, of 14 November, on credit institution restructuring and resolution. The law introduced a standardised regulatory system that strengthened the extraordinary intervention powers allocated to FROB, which became a genuine resolution authority. The law established a series of objectives to be followed in the orderly restructuring and resolution processes of credit institutions. These include: i) ensuring the continuity of the institutions’ critical functions; ii) preventing harmful effects on the stability of the financial system, and iii) ensuring the most efficient use of public resources, minimising the financial support which, on an extraordinary basis, it may be necessary to grant. The new resolution regime involved the existence of three levels of management (early intervention, restructuring and resolution). These were associated with measures of varying levels of intensity that the public authorities might apply according to the gravity of the difficulties faced by the credit institutions.
In order to perform its functions, FROB was granted a broad catalogue of powers, differentiating between “commercial” and “general administrative” powers. On the one hand, FROB could exercise the powers that commercial legislation generally conferred on the management body and the general meeting or assembly of a commercial company. On the other hand, it also had the necessary administrative powers to implement the restructuring and resolution instruments.
Since then, FROB was configured as a full resolution authority, a new player in the institutional framework with its own specific mandate and full capacity to discharge its duties, the seed of the current resolution authority, consolidated after Law 11/2015.