Today the Cabinet finalized an agreement that officially kicks off a reform of the banking sector. The Minister of the Economy will take direct control of the process after increasing its presence in the Frob, adding five advisors, to the disadvantage of the Bank of Spain, which will still have the four seats it holds currently.
The government is strengthening the role of the Frob, which will oversee the bailout, restructuring and liquidation of the banks. The Bank of Spain will ocuppy itself with bank interventions. The changes will shift power and control to the executive, which will be authorized to negotiate rules associated with competition, transparency and discrimination.
In other words, when the Frob thinks that the system becomes instable and it would be necessary to take measures to strengthen it. According to guidelines laid out in the memorandum of understanding (MoU) with the EU, the approved reform introduces greater liquidation flexbility, something that De Guindos' two financial reform bills lacked earlier this year. The liquidation process of a back will become less complicated and quicker. Another aspect that is also regulated by the EU is the solution for preferential shares, whose shareholders will assume part of the incurred losses. The shares will be assessed at market value, and that implies that the shareholders will lose money and won't be able to petition the Frob for any incurred losses. The law is a significant advance toward executing the financial sector bailout, although it could lead to a tricky situation if the Bank of Spain gets a smaller role than it should.
