AMENDMENT OF LEGISLATION (CREDIT INSTITUTION DEPOSIT GUARANTEE FUNDS)

AMENDMENT OF LEGISLATION ON CREDIT INSTITUTION DEPOSIT GUARANTEE FUNDS.

Royal Decree 771/2011 amends Royal Decree 2606/1996 by introducing a new regime for
additional contributions to these funds based on the remuneration of the deposits in
them.12 Specifically, the amounts of the deposits whose agreed remuneration exceeds the limits specified below shall be weighted at 500% (i.e. 400% more than the weight they
would have if they were included in that base) for the purpose of calculating the contributions
of the credit institutions belonging to the related deposit guarantee funds.

The limits above which the new weights will be applied are as follows: 1) sight deposits
whose annual interest paid in the periodic settlement of the account is more than 100 basis
points higher than average 1-month EURIBOR; 2) time deposits (or similar instruments)
up to three months whose agreed annual interest is more than 150 basis points higher than
average 3-month EURIBOR; 3) time deposits (or similar instruments) between three
months and one year whose agreed annual interest is more than 150 basis points higher
than average 6-month EURIBOR; and 4) time deposits (or similar instruments) with a term
of one year or more whose agreed remuneration is more than 100 basis points higher than
average 12-month EURIBOR.
Banco de España Circular CBE 3/2011 of 30 June 2011 (BOE of 2 July 2011) on additional
contributions to deposit guarantee funds sets out technical provisions implementing
the new precepts introduced by Royal Decree 771/2011.
The Circular contains two types of rules: those for identifying what is understood as deposit
remuneration in different practical cases, and those regulating ad hoc tools for calculating
the additional contribution.
Deposit remuneration shall comprise any explicit or implicit compensation or payment,
in cash or in kind, for maintaining a deposit. Thus the value of remuneration in kind shall
be that applicable under tax legislation, including any tax prepayments to be made for
the remuneration when they are borne by the institution. In variable-rate time deposits,
the remuneration shall be that which results from applying the reference index at the
deposit placement date over the whole of the agreed time period, disregarding possible
future modifications. In time deposits in which the interest rates change before maturity,
the interest rate taken shall be the average of the rates, weighting each by the time it is
to be applied. In hybrid financial instruments in which the embedded derivative does
not share similar characteristics and risks with the host contract, the interest rate used
to determine their remuneration shall be the maximum annual percent remuneration
receivable by the depositor on the amount deposited, if it is higher than the effective
annual interest rate corresponding to the host contract after the embedded derivative
has been stripped out; in the absence of the former, only the latter shall be taken. In any
event, any additional remuneration envisaged in the contract, be it in cash or in kind,
has to be included.
For the purpose of calculating the additional contributions to a deposit guarantee fund
stipulated in Royal Decree 771/2011, in sight deposits the specified limits shall be compared
with the remuneration of their average balances. These average balances shall be
the result of dividing the sum of the daily balances of each sight deposit by the number of
calendar days included in each settlement. In time deposits, comparison shall be with the
various limits set depending on the duration of the initially agreed deposit, disregarding
any potential partial repayments agreed in the contract. Subsequent renewals, whether
envisaged or not in the original contract, shall be considered as new deposits.
Law 6/2011 came into force on 13 April 2011, Royal Decree 771/2011 came into force on
5 June 2011 (except as provided in the case of the transitional regimes envisaged therein)
and Circular 3/2011 came into force on 4 July 2011.

CHANGE IN LIMITS ON LARGE EXPOSURES

The new legislation generally maintains the limit such that the value of all the exposures of
a credit institution to a customer (entity or economic group) may not exceed 25% of its
own funds.
Where that customer is a credit institution or investment firm, or where the economic
group includes one or more credit institutions or investment firms, the value of all exposures
may not exceed 25% of the credit institution’s own funds or €150 million, whichever
the higher, provided that the sum of exposure values to all customers in the economic
group that are not credit institutions or investment firms does not exceed 25% of the
credit institution’s own funds.
Where the amount of €150 million is higher than 25% of the credit institution’s own funds,
in accordance with the policies and procedures to manage and control concentration risk,
the value of the exposure shall not exceed a reasonable limit in terms of the credit institution’s
own funds. That limit shall not be higher than 100% of the credit institution’s own
funds.
The previous limit that total large exposures could not exceed 800% of the credit institution’s
own funds is eliminated.
The following exceptions to limits on large exposures are also eliminated: 1) holdings in
certain insurance companies up to a maximum of 40% of own funds, and 2) claims on
certain central governments and central banks of countries that are denominated and financed
in the borrower’s national currency.