Bank Account Holders in Spain: Protect Your Account Balance and Qualify for Deposit Insurance Repayment When Banks Fail or Stop
In size and population, the Kingdom of Spain is one of the largest member states of the European Union. The multinational Spanish economy drives the internal market and allows local companies to expand in other countries with cultural and linguistic ties. Yet, employment and productivity have been a long-term weakness fueled by the grey market and underground economy. In the wake of the global financial crisis and the European sovereign debt crisis, Spain was often referred to as a showcase for structural reform. Several economic vulnerabilities remain, however. These include a lack of a stable provision for natural resources, geopolitical risks, inflation, and too much reliance on mass tourism, automobiles, and exports. The impact on society can be illustrated by the toxic cocktail of high real estate prices, low interest rates, and massive foreign investment that leads to high household and business debt.
The financial sector in Spain comprises deposit taking and credit institutions, and supervised financial service providers. Credit institutions operate as banks and include an Official Credit Institute (ICO), commercial banks, savings banks and cooperative banks. Financial service providers include credit financial establishments, payment institutions, electronic money institutions, mutual guarantee and counter-guarantee societies, and valuation companies. The Spanish financial sector is regulated by different institutions. These include the Secretariat of Treasury and Financial Policy, the Directorate General for International Trade and Investments in the Ministry of Economy and Competitiveness, and the Bank of Spain.
Characteristics of the Spanish Financial Sector
With a focus on retail activities, the Spanish banking system is based on the universal banking model that comprises three types of deposit institutions, commercial banks, savings banks and cooperative banks. Banking in Spain predominantly intermediates between savers and borrowers. Bank income is derived from a combination of interest fees and charges and payment services, and to a lesser extent a commission on traditional bank products. Private sector deposits account for nearly half of the balance sheet of banks in Spain, limiting the need for interbank and market finance. Although branch density is substantial, operational efficiency and sector profitability remains high.
A key part of the Spanish economy is the financial sector. This financial sector is closely related to the real estate and construction industries. The real estate and construction industry is vulnerable for bubbles fueled by low interest rates, subprime loans based on trust rather than verifiable facts, inflation and rising costs. The result is a liquidity shortage furthered by unbalanced loan-to-value and defaults.
The global financial crisis and the consecutive European debt crisis revealed several shortcomings in the Spanish financial industry. A number of imbalances were detected, including excessive credit growth for both households and businesses, high concentration of risk in the real estate sector, rapid expansion of the network of branches and the number of employees, and weakness in the governance structure of savings banks that mainly financed the property bubble.
Debt Resolution and Other Structural Reforms
Even though Spanish banks and the domestic financial had little exposure to the global financial crisis of 2008, the following recession had an impact on the real economy. Unemployment rose, property prices slid, loan defaults went up. This, in particular, affected the smaller regional savings based that mainly used customer deposits and covered bonds as a source for funding their loan portfolio. Intervention by the Bank of Spain via a stabilization and consolidation program redesigned the financial sector. A bailout package approved by the European Stability Mechanism financed the efforts of the Bank of Spain.
Initially, institutional actions focused on the reduction of problem assets and the attraction of quality capital. The sizeable workforce and branch network was brought back into proportion and the domestic insolvency regime was reformed. The banking sector was strengthened by regulatory changes, increased capital, and progress with legacy issues. In spite of these efforts, the Spanish financial system is still vulnerable to liquidity challenges, conglomerate ownerships, interbank exposures, and cross-border interconnectedness and links with the rest of the world. As a result, systemic risk remains with banks serving as net transmitters of financial surplus and insurance companies as its net recipients.
To prevent setbacks, certain critical weaknesses in the Spanish financial sector need to be continually monitored and addressed. A particular emphasis must be placed on the clean-up of legacy bank assets, bank profitability and capitalization, interest rate and liquidity risk management, and the regulatory and institutional framework.
Banking and Finance in Spain
Financial institutions in Spain are intermediaries with a focus on the retail market and address the needs of local small-and medium sized enterprises. A dense network of small private banks and branches dominate the credit market. Their funds are used to finance the private sector while they also act as investors and underwriters in the stock market. Bank income mainly originates from fees and charges in the loan book, payment services, and investment activities. Spanish subsidiaries have international systemic importance due to their cultural and linguistic ties to Latin America.
In terms of cost to income, Spanish banks stand out for their high levels of operational efficiency. However, economic fluctuations, unemployment, real estate bubbles and considerable non-performing exposures place a burden on financial stability. Efforts are made to transfer NPL packages to SAREB, the legal entity responsible to absorb and exploit the impaired assets.
Bank Deposit Protection in Spain
The Fondo de Garantia de Depositos de Entidades de Credito (FGD) is a separated legal entity established by Royal Decree. Its objective is to guarantee bank deposits and securities held by credit institutions in Spain. The maximum level of bank deposit protection in Spain is in line with the EU standard of 100.000 euro, or its equivalent in other currency. Additional coverage, irrespective of the amount, applies for several predefined deposits for a period of three months from the moment the funds have been credited or are legally transferrable. These deposits include deposits relating to private residential properties, deposits deriving from payments received by the depositor on a one-off basis in connection with marriage, divorce, retirement, dismissal, disability or death, and deposits concerning insurance or indemnity payments for damages as a result of a criminal act or a judicial error.
Membership of the fund is mandatory for all Spanish credit institutions. Members make annual and special financial contributions to the fund to substantiate its value and reimburse insured deposits on demand. A pay-out event is triggered when an institution has been declared insolvent or a request has been filed through the courts for insolvency, or when an institution has not been declared insolvent as per the previous paragraph but deposits past-due and callable on demand have not been reimbursed, and the Bank of Spain decides that the credit institution is unable to repay the deposits. Payment is made to eligible and verifiable creditors only. Bank deposit protection in Spain covers deposits and securities via separately accounted compartments.
Eligible deposits are credit balances subject to the terms and conditions of held at FGD members. The failed member informs the FGD administration about its insured creditor base. The FGD informs eligible creditors on the exact procedures for reimbursement. After the claim is verified and approved, repayment is made within 7 business days of receiving the repayment instruction. Ineligible claimants, unsecured monetary deposits and deposits for sums exceeding the secured limit need special attention to avoid claim subordination.
Contact us for More Information and to Discuss Your Case…
This website is an initiative of Legal Floris LLC. We assist international creditors recover money when their bank fails or their investments disappears. Due to our vast experience in bank failures in different countries, we are able to maximize repayments and minimize risks for our clients. Contact us right now to find out how we can help you too to reclaim your account balance if your bank in Spain stops operating:
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