Fund for Orderly Bank Restructuring Frob

The Frob Bank Orderly Restructuring Fund, is an organization that was formed in Spain in 2009, in order to put in order the disorder that existed with credit institutions that were increasing due to the financial crisis that had been dragging on since the year 2008.

This decree, which was approved, contains two main objectives that are to address the management of the restructuring processes of the various credit institutions and to contribute to strengthening their resources during the processing of the integration of entities. Similarly, it is intended to create a method to accommodate financial problems that may arise in the process of economic recovery.

This fund obtained a first endowment of 9,000 million euros, in addition to the 75% generated from the general budget of the State and 25% by the guarantee funds of the deposits of banks, credit unions and savings banks. saving.

After this, its endowment increased to about 15,000 million euros, resulting in a fight without any type of operation like those that had been dragging previously. Therefore, more indebtedness prevailed, since more was spent than what was had inside.

What is the function of the Fund for Orderly Bank Restructuring?

This body is in charge of the mechanism that seeks to float the financial system of Spain. To carry it out, carry out a review of all the entities that comprise it and the appropriate increase of its capital, which has caused these revisions to have as consequences in the structure bank.

On the one hand, very few entities have been intervened, but they have had no other option and they have had to merge in order to meet the requirements of solvency and thus be able to access the help of the Orderly Restructuring Fund Banking.

Who is in charge of the Fund for Orderly Bank Restructuring?

Within this body is in command, a governing group that is made up of eight members who were proposed by the Ministry of Economy, five appointed by the proposal of the Bank of Spain and finally three representing each of the Guarantee Funds of Deposits Every four years this group of commissioners will be renewed.

Functions of the capital of the Fund for Orderly Bank Restructuring

The FROB has come to the conclusion of making an economic loan support to financial entities determined by the Bank of Spain by means of the formulas presented below:

Direct management with the banking entities that are affected

This management will be carried out by means of a staff chosen by the Bank of Spain, in order to carry out a total bank restructuring. This trained staff will replace the Boards of Directors that were previously, carrying out a provisional work of the various entities that are affected.

Strengthening and recapitalization of financial institutions

Due to the acquisition of the preferred participation, these reinforcements will later provide the conversion of shares, direct inflows of capital or participation quotas within each entity that need the help of the FROB.

Financial activity

Activities will be carried out within the financial markets, in order to receive and grant loans, execute emissions of debts or also any other indebtedness technique that allows the entity to attract various resources strangers.

The limit for attracting third-party resources was set three times more than its assets and increased nine times more than the assets of the FROB since 2010. This body has the power to issue debt and also contract loans with different entities, in amounts of up to 90,000 million euros.

This is because it is an organization that has a solidarity guarantee from the Spanish State designated for all financial operations that it must carry out.

At the fiscal level, the FROB body It can be compared with the Deposit Guarantee Funds, since it has the total exemption in corporate taxes and also for the quotas that are supported by all the fundamental indirect taxes, such as the tax on the VAT.

Possible restructuring processes of credit institutions

In the course of these processes, three important phases can be distinguished, such as the following:

• Find a possible solution that is private, that comes from the credit institutions themselves.
• Adopt measures to be able to face the weaknesses that affect the roads of credit institutions with the support of the Deposit Guarantee Funds.
• Process the restructuring, through the intervention of the Fund for Orderly Bank Restructuring.

In the event that there are weaknesses in the economic and financial field of a certain entity that could put its roads at risk, in addition to determining the agreement of a process of restructuring, an initiative must be presented by the identity or intervention of the Bank of Spain, providing it with a period of one month so that it can solve its situation.

The plan to be executed must be approved by the Bank of Spain, who may have the power to modify it if it sees fit. You will be able to contemplate the possible actions of:

• Reinforce the heritage and the solvency Of the entity.
• Merge the entity or absorb it.
• Carry out the total or partial transfer of the business units.

The appropriate Deposit Guarantee Fund, according to the terms corresponding to the regulatory standards, may support the execution of the plan presented by the credit institution, through different preventive measures that are considered necessary.

If the weakness situation persists and a situation arises in which the entity does not present a road plan or does not have the capacity to comply with it and it is not viable in the opinion of the Bank of Spain, that is when the intervention phase will be passed with the use of the FROB.