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Bank Failures: Roles, Liabilities, and Requirements

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Bank Failures

When a bank fails, its management and directors have a crucial role to play in the resolution process. Here are some key points to consider:

• In the event of a bank failure, management and directors must provide all possible assistance under the resolution process.
• Banks are required to have a recovery plan in place to address significant financial deterioration.

Directors’ Liability

Directors may be personally liable for damages caused by gross negligence or willful misconduct leading to a bank failure. They may also face criminal liability for:

• False accounting
• Negligent business management
• Destruction of required documentation
• Fraudulent transactions

Resolution Planning

As a preventive measure, Spanish credit institutions must draw up and maintain a recovery plan that includes measures to restore their position in the event of significant financial deterioration. The plan should include:

• Quantitative indicators to initiate relevant measures
• Qualitative indicators to assess the institution’s financial situation

Capital Requirements

Spanish credit institutions are subject to Regulation (EU) 575/2003 (CRR), which provides prudential requirements for all European credit institutions and investment firms. The CRR requires banks to maintain a minimum level of capital adequacy, including:

• A common equity Tier 1 (CET1) capital ratio of 4.5 per cent
• A Tier 1 capital ratio of 6 per cent
• A total capital ratio of 8 per cent

While contingent capital arrangements are not explicitly required, banks must maintain a minimum level of capital adequacy as specified by the CRR.

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