Banking Law and the Volcker Rule: Comparative Analysis — Spain

1. Introduction

The Volcker Rule is a United States banking regulation introduced by Section 619 of the Dodd–Frank Wall Street Reform and Consumer Protection Act, principally codified in 12 U.S.C. § 1851. Its central objective is to prevent banking entities from using their own balance sheets to engage in proprietary trading and from taking certain interests in or sponsoring hedge funds and private-equity funds. The U.S. regulatory framework is implemented jointly by several federal regulators, including the Federal Reserve, OCC, FDIC, SEC and CFTC.

Spain does not have a direct Spanish equivalent of the Volcker Rule. Instead, Spanish banks are regulated within the EU Banking Union, particularly through EU prudential legislation, ECB supervision for significant institutions, CRR/CRD requirements, MiFID/MiFIR rules for investment activities, market-abuse rules, and the EU bank-resolution framework.

Therefore, a comparison should not ask simply whether Spain "has a Volcker Rule." The better legal question is:

How does the Spanish/EU regulatory framework achieve objectives comparable to the Volcker Rule, and where does it differ from the U.S. model?

2. Meaning and Objectives of the Volcker Rule

The Volcker Rule is essentially based on two major restrictions:

The Federal Reserve describes the rule as generally prohibiting banking entities from proprietary trading and from investing in or sponsoring hedge funds or private-equity funds.

Core policy objectives

The rule seeks to:

1. reduce systemic risk;
2. prevent excessive speculative activity by banks;
3. protect depositors and the financial safety net;
4. reduce conflicts of interest;
5. limit the transmission of trading losses into core banking operations;
6. discourage banks from becoming excessively dependent on volatile trading income.

3. Why Spain Does Not Simply Copy the Volcker Rule

Spain operates within the European Union's Banking Union.

The Spanish banking system therefore operates through a multilayered framework:

EU legislation → ECB supervision → Banco de España → Spanish implementing legislation → individual bank governance and risk controls.

Consequently, Spain uses a more integrated prudential model rather than imposing a single U.S.-style prohibition on proprietary trading.

The important distinction is:

The U.S. approach is activity-restrictive, whereas the EU/Spanish approach is predominantly risk-, capital-, governance-, supervision- and resolution-based.

4. Spanish Legal Framework Relevant to Volcker-Type Regulation

Several areas of Spanish/EU banking law perform functions that overlap with the objectives of the Volcker Rule.

A. Capital Requirements Regulation

The Capital Requirements Regulation (CRR) imposes prudential requirements concerning:

• capital;
• credit risk;
• market risk;
• leverage;
• liquidity;
• large exposures;
• risk management.

A bank undertaking substantial trading activity therefore cannot treat that activity as economically costless.

Volcker comparison

The Volcker Rule asks:

"Should the bank be permitted to engage in this proprietary trading activity at all?"

The EU prudential model more often asks:

"If the bank engages in this activity, does it have sufficient capital, risk controls and governance to absorb the associated risk?"

That is a fundamental difference.

5. CRD and Supervisory Governance

The Capital Requirements Directive (CRD) provides an additional layer of governance and supervisory requirements.

Spanish banks must maintain appropriate:

• internal governance;
• risk-management systems;
• internal controls;
• remuneration policies;
• management oversight;
• supervisory reporting.

This indirectly limits excessive proprietary or speculative risk-taking.

The ECB, through the Single Supervisory Mechanism, also has significant supervisory authority over major Spanish banking groups.

6. MiFID II and MiFIR

Another important distinction is that trading activity by a Spanish bank is not automatically treated as prohibited simply because it resembles proprietary trading.

Investment-service rules under MiFID II/MiFIR regulate activities such as:

• dealing on own account;
• market making;
• investment services;
• trading venues;
• client execution;
• algorithmic trading;
• transparency;
• conduct of business.

Thus, a Spanish bank can conduct legitimate securities trading under the appropriate regulatory framework.

Key distinction

Dealing on own account ≠ automatically prohibited proprietary trading in Spain.

This is different from the basic philosophy of the Volcker Rule.

7. Market-Making Exception: Important Comparative Issue

One of the most difficult aspects of the Volcker Rule is distinguishing:

• prohibited speculative trading

from

• legitimate market making.

The U.S. framework therefore contains exemptions and compliance conditions for activities such as:

• underwriting;
• market making;
• risk-mitigating hedging;
• trading in government obligations.

In Spain/EU regulation, market making and dealing activities are generally regulated rather than categorically prohibited.

This means the European model is potentially more permissive regarding legitimate trading activity, provided the institution complies with prudential and conduct requirements.

8. Proprietary Trading: Spain v United States

9. Spain's Structural Approach to Banking Risk

Rather than prohibiting a particular category of trading, Spain and the EU emphasize:

1. Capital adequacy

Banks must hold sufficient capital against their risks.

2. Leverage controls

Leverage restrictions reduce the possibility that relatively small losses will destroy a bank's capital base.

3. Liquidity requirements

Liquidity rules reduce the possibility that trading losses will generate immediate funding crises.

4. Governance

Boards and senior management are expected to maintain appropriate risk-management structures.

5. Supervisory review

Supervisors can intervene when a bank's risk profile becomes excessive.

6. Resolution

If a bank fails, EU resolution rules seek to impose losses on shareholders and relevant creditors while protecting critical functions.

10. The Spanish/EU Resolution Framework as a Different Answer to Systemic Risk

One of the most important differences between the two systems concerns bank failure.

The EU's Bank Recovery and Resolution Directive and Single Resolution Mechanism are designed to permit authorities to:

• recapitalize a failing bank;
• write down capital instruments;
• convert eligible liabilities;
• sell the institution;
• preserve critical banking functions;
• minimize taxpayer support.

The Banco Popular litigation demonstrates how significant this framework has become in Spain.

In June 2017, Banco Popular was resolved through the Single Resolution Mechanism. Its shares were written down, certain capital instruments were converted, and the resulting shares were transferred to Banco Santander for €1. The Spanish FROB implemented the resolution decision.

11. Case Law 1 — Banco Santander v J.A.C. and M.C.P.R.

C-410/20, CJEU, 5 May 2022

This is one of the most important Spanish banking-law cases for comparative analysis.

The case concerned claims brought by investors following the resolution of Banco Popular.

The CJEU considered the interaction between:

• bank resolution;
• write-down of capital;
• investor rights;
• prospectus liability;
• actions against the successor bank.

The case illustrates that EU law gives considerable importance to the effectiveness of bank-resolution measures.

Significance for Volcker comparison

The case demonstrates a fundamental EU philosophy:

The EU does not primarily prevent banking risk by prohibiting trading activities; it also attempts to ensure that when a bank becomes non-viable, the resolution framework can operate effectively.

That is different from the Volcker Rule's preventive focus on restricting certain banking activities.

12. Case Law 2 — Banco Popular Resolution Litigation

In 2022, the General Court rejected challenges against the Banco Popular resolution scheme.

The cases concerned the legality of the SRB's resolution decision and the Commission's endorsement.

The Court accepted the legality of the resolution framework in the circumstances presented.

Importance

The litigation demonstrates the EU's emphasis on:

• financial stability;
• continuity of critical banking functions;
• resolution planning;
• loss absorption;
• protection of the banking system.

This is a different regulatory mechanism from the Volcker Rule, but it addresses a related systemic-risk concern.

13. Case Law 3 — Banco Santander (Resolution of Banco Popular II)

In Joined Cases C-775/22, C-779/22 and C-794/22, the CJEU considered further questions arising from the Banco Popular resolution.

The litigation involved:

• write-down and conversion of capital instruments;
• shareholder and creditor protection;
• prospectus information;
• claims for damages;
• effects of the resolution decision.

The judgment was delivered on 5 September 2024.

Legal significance

The case confirms the importance of balancing:

financial stability + resolution effectiveness

against

investor and creditor rights.

That balancing exercise is central to European banking law.

14. Case Law 4 — Banco Santander (Resolution of Banco Popular III)

In Case C-687/23, the Spanish Supreme Court referred questions concerning claims arising from financial instruments connected with Banco Popular.

The CJEU delivered judgment on 11 September 2025.

The case concerned, among other things:

• Directive 2014/59/EU;
• bail-in;
• write-down of capital instruments;
• shareholder and creditor protection;
• claims based on allegedly defective information;
• the effect of resolution on pre-existing claims.

Importance

This is particularly useful for a comparative banking-law answer because it illustrates the continuing development of European rules concerning loss allocation when a bank fails.

15. Case Law 5 — Banco Santander v Spanish State / Banco Popular AML Liability

The Spanish Constitutional Court's Judgment 179/2023, published in the BOE in 2024, concerned Banco Santander's challenge relating to an administrative sanction imposed for failures originally attributable to Banco Popular in the area of anti-money-laundering reporting.

The case involved the transmission of regulatory responsibility following the resolution and subsequent absorption of Banco Popular.

Importance for comparative banking law

This demonstrates that Spanish banking regulation does not operate only through capital requirements.

It also includes:

• AML compliance;
• supervisory enforcement;
• institutional responsibility;
• corporate succession;
• regulatory sanctions.

That broad supervisory architecture is important when comparing Spain with the U.S. Volcker framework.

16. Case Law 6 — García Fernández and Others v Commission and SRB

In Case C-541/22 P, the CJEU examined an appeal concerning the Banco Popular resolution.

The case involved issues concerning:

• Regulation 806/2014;
• the Single Resolution Mechanism;
• resolution objectives;
• SRB obligations;
• valuation;
• confidentiality;
• access to information;
• investor rights.

Significance

The decision further demonstrates the importance of EU-level resolution supervision in Spain's banking system.

17. Spain's Approach to Hedge Funds and Private Equity

The Volcker Rule imposes specific restrictions on banking entities' relationships with covered funds.

Spain does not simply replicate this architecture.

Instead, investment exposure is addressed through a combination of:

• prudential capital rules;
• large-exposure requirements;
• investment-firm regulation;
• fund-management regulation;
• risk-management requirements;
• governance;
• supervisory intervention.

Therefore:

Spain controls banking-sector exposure to investment risks primarily through a combination of prudential rules rather than one comprehensive statutory ban equivalent to Volcker.

18. Why the Difference Matters

Imagine a Spanish bank creates a trading desk dealing in securities.

Under a simplified Volcker analysis:

Is this proprietary trading? → If yes, does an exemption apply?

Under the Spanish/EU approach:

What activity is being undertaken? → Is the institution authorized? → What risks does it create? → What capital is required? → What governance applies? → Is it appropriately controlled? → Does it breach exposure, market-conduct or prudential rules?

The second model is therefore more risk-sensitive and supervisory.

19. Comparative Advantages

A. Advantages of the U.S. Volcker model

1. Clear policy objective

It directly targets certain forms of bank risk-taking.

2. Reduced conflict

It attempts to separate deposit-taking banking from speculative trading.

3. Systemic-risk prevention

It can reduce certain channels through which trading losses affect banking entities.

4. Strong regulatory boundary

The prohibition creates a recognizable line between permitted and prohibited activities.

20. Advantages of the Spanish/EU Model

1. Flexibility

Banks can engage in legitimate market activities without an absolute proprietary-trading prohibition.

2. Risk sensitivity

Regulation can respond to the size and nature of the risk.

3. Integrated supervision

ECB supervision is combined with national authorities.

4. Resolution mechanisms

The Banking Union provides mechanisms for dealing with failing banks.

5. Capital-based discipline

Riskier activities can require greater capital.

21. Disadvantages of the Spanish/EU Model

A major criticism is that a risk-based model may permit banks to accumulate substantial market risks provided they appear adequately capitalized.

This creates the possibility that:

• models underestimate risk;
• market volatility increases suddenly;
• liquidity disappears;
• correlations increase during crises;
• capital requirements fail to capture extreme losses.

The Volcker approach responds to some of these concerns through activity restrictions, rather than relying exclusively on capital.

22. Disadvantages of the Volcker Rule

The U.S. model also creates significant difficulties.

A. Definition problems

Distinguishing proprietary trading from:

• market making;
• underwriting;
• hedging;
• client facilitation

can be difficult.

B. Compliance costs

Banks require extensive monitoring and documentation.

C. Reduced market liquidity

Restrictions on bank trading activities can potentially affect market-making capacity.

D. Regulatory complexity

The rule is implemented through multiple regulators and detailed exemptions.

The Federal Reserve's own Volcker Rule materials reflect the extensive regulatory development and later efforts to simplify and tailor compliance.

23. Constitutional and Legal Principles in Spain

Spanish banking regulation must also operate within broader principles of:

• legality;
• proportionality;
• legal certainty;
• protection of property;
• effective judicial protection;
• due process;
• administrative accountability.

This becomes particularly important when regulatory intervention affects:

• shareholders;
• creditors;
• investors;
• bank owners;
• management.

The Banco Popular litigation illustrates the judicial scrutiny surrounding these issues.

24. Comparative Regulatory Matrix

25. Is There a "European Volcker Rule"?

The short answer is:

Not in the strict U.S. legal sense.

There have been European discussions and proposals concerning structural separation of banking activities, particularly following the global financial crisis.

However, the EU ultimately did not create a regulatory regime identical to Section 619 of Dodd–Frank.

Instead, the European framework developed around:

• CRR;
• CRD;
• MiFID II;
• MiFIR;
• BRRD;
• SRM;
• ECB supervision;
• macroprudential supervision;
• governance and remuneration controls.

Therefore, describing Spanish law as having a "Volcker Rule" would be legally inaccurate.

26. Relationship With the Banco Popular Failure

Banco Popular provides an especially useful illustration.

The regulatory response was not:

"Banco Popular must be separated from trading activities because proprietary trading is prohibited."

Instead, the European authorities used the resolution framework after the bank was determined to be failing or likely to fail.

The process included:

1. determination that the bank was failing or likely to fail;
2. SRB resolution decision;
3. write-down of capital;
4. conversion of certain instruments;
5. transfer of the resulting shares;
6. acquisition by Banco Santander;
7. subsequent litigation.

The Spanish government's official materials describe the 2017 resolution and transfer of the shares to Banco Santander for €1.

This illustrates the EU's preference for resolution and loss absorption rather than a purely structural prohibition on risky bank activities.

27. Overall Legal Assessment

The best comparative conclusion is:

The Volcker Rule and Spanish/EU banking law pursue overlapping objectives—especially reduction of systemic risk and protection of the banking system—but use substantially different regulatory techniques.

The United States uses an activity-based restriction:

Banking entity → proprietary trading → prohibition subject to defined exceptions.

Spain/EU uses a prudential-supervisory model:

Bank → activity → risk → capital + governance + supervision + market-conduct rules + resolution framework.

Consequently, Spanish banks generally have greater freedom to conduct trading and investment activities than a U.S. banking entity would have under a strict Volcker analysis, but they operate under extensive prudential and supervisory constraints.

28. Conclusion

The Volcker Rule is not directly applicable as Spanish domestic banking law. Its closest Spanish/EU counterparts are not found in a single statute but across the broader architecture of European banking regulation.

The most important comparative distinction is:

United States:
"Certain risky banking activities should be prohibited or tightly restricted."

Spain/EU:
"Risky banking activities should be subject to capital, governance, supervision, conduct regulation and, where necessary, resolution."

The Banco Popular jurisprudence is particularly valuable because it shows how Spanish banking law operates through the EU Banking Union and Single Resolution Mechanism, rather than through a Volcker-style separation of proprietary trading from deposit banking. The CJEU's Banco Popular cases also demonstrate the continuing judicial balancing of financial stability, resolution effectiveness, shareholder rights and creditor protection.

Key case laws for examination

1. Banco Santander v J.A.C. and M.C.P.R., C-410/20 (CJEU, 2022) — Banco Popular resolution and investor claims. 
2. Aeris Invest and related Banco Popular resolution cases — legality of SRB resolution measures. 
3. Banco Santander (Resolution of Banco Popular II), Joined Cases C-775/22, C-779/22 & C-794/22 (CJEU, 2024) — bail-in, investor claims and creditor protection. 
4. García Fernández and Others v Commission and SRB, C-541/22 P (CJEU, 2024) — Banking Union, SRB powers and Banco Popular resolution. 
5. Banco Santander (Resolution of Banco Popular III), C-687/23 (CJEU, 2025) — pre-existing investor claims and effects of resolution. 
6. Spanish Constitutional Court, Judgment 179/2023 — regulatory/AML responsibility following Banco Popular's resolution and absorption by Santander.