1. Introduction

Capital impairment under Spanish banking law occurs when a credit institution's regulatory capital deteriorates below applicable prudential requirements or becomes insufficient to absorb financial losses. Capital impairment may trigger supervisory intervention, restrictions on distributions, recovery planning, resolution proceedings, or insolvency-related measures.

Spain's banking framework operates within the European Union's Single Supervisory Mechanism (SSM), involving the European Central Bank (ECB), Banco de España, and the Single Resolution Board (SRB).

Importantly, capital impairment does not automatically establish insolvency. Different legal thresholds produce different supervisory consequences.

2. Legal Framework

The principal legislation governing capital impairment includes:

A. Regulation (EU) No. 575/2013 (CRR)

The Capital Requirements Regulation establishes minimum prudential capital ratios, capital definitions, and risk-weighted asset calculations.

B. Directive 2013/36/EU (CRD)

The Capital Requirements Directive governs capital buffers, supervisory review, additional capital requirements, and restrictions on distributions.

C. Law 10/2014

Spain's Law 10/2014 on the regulation, supervision, and solvency of credit institutions establishes domestic banking supervision and prudential obligations.

D. Law 11/2015

Law 11/2015 governs the recovery and resolution of credit institutions and investment firms in Spain.

E. Regulation (EU) No. 806/2014

This Regulation establishes the Single Resolution Mechanism and provides the framework for determining whether participating banks are failing or likely to fail.

3. Minimum Capital Thresholds

Under Article 92 CRR, the principal minimum regulatory capital ratios are:

These percentages are calculated against total risk exposure amounts.

Banks must also satisfy applicable Pillar 2 requirements, capital buffers, and leverage requirements.

The capital conservation buffer generally requires an additional 2.5% CET1.

Consequently, a bank may satisfy the 4.5% CET1 minimum while nevertheless breaching its combined buffer requirement.

Such a breach principally triggers capital conservation obligations and distribution restrictions rather than automatic resolution.

4. Supervisory Intervention Thresholds

Where capital impairment threatens regulatory compliance, the ECB or Banco de España may impose corrective measures.

These can include:

Requiring additional own funds.

Restricting dividend distributions.

Limiting certain remuneration payments.

Requiring capital restoration plans.

Ordering improvements in risk-management systems.

Restricting activities presenting excessive prudential risks.

Article 16 of Regulation 1024/2013 provides significant ECB supervisory intervention powers.

The applicable measures must reflect the institution's circumstances, regulatory obligations, and supervisory assessment.

5. Resolution and Insolvency Thresholds

Under Article 18 of Regulation 806/2014, resolution generally requires three conditions:

The institution is failing or likely to fail.

No reasonable alternative private-sector or supervisory measure would prevent failure within a reasonable timeframe.

Resolution is necessary in the public interest.

A bank may be failing or likely to fail when losses exhaust all or substantially all of its own funds or when other statutory failure conditions arise.

However, there is no single universal capital ratio automatically triggering resolution.

6. Important Case Laws

Case 1: Banco Popular Español SA Resolution (2017)

On 7 June 2017, the SRB adopted a resolution scheme concerning Banco Popular Español.

The ECB determined that the institution was failing or likely to fail because of its rapidly deteriorating liquidity position.

The SRB approved resolution involving the sale of the institution to Banco Santander.

The case demonstrates that resolution can result from liquidity failure even when the issue is not simply a breach of a specified capital ratio.

Case 2: Algebris (UK) Ltd and Anchorage Capital Group LLC v Commission, T-570/17, General Court, 1 June 2022

This litigation challenged decisions connected with Banco Popular's resolution.

The General Court dismissed the action and examined the legal requirements supporting the resolution framework.

The judgment illustrates judicial scrutiny of resolution decisions, including the legal conditions governing intervention and institutional assessments.

Case 3: Aeris Invest Sàrl v Commission and SRB, T-628/17, General Court, 1 June 2022

This case also concerned Banco Popular's resolution.

The General Court addressed challenges involving valuation, procedural protections, and the legality of the resolution process.

The decision demonstrates that resolution authorities' assessments remain reviewable under EU law.

Case 4: ABLV Bank AS and Others v ECB, Joined Cases C-551/19 P and C-552/19 P, Court of Justice, 6 May 2021

The Court addressed the legal character of ECB failing-or-likely-to-fail assessments.

It clarified that such ECB assessments, within the relevant resolution procedure, were preparatory measures rather than independently challengeable final decisions.

This distinction is important when determining the appropriate judicial remedy against supervisory or resolution actions.

7. Legal Remedies Available to Spanish Banks

Affected banks may challenge qualifying ECB decisions before the General Court of the European Union under Article 263 TFEU.

They may also seek administrative review by the ECB's Administrative Board of Review where applicable.

Challenges may involve incorrect capital calculations, proportionality, procedural irregularities, inadequate reasoning, or misuse of supervisory powers.

National decisions may be contested through appropriate Spanish administrative or judicial procedures.

8. Conclusion

Spanish banking law establishes multiple capital impairment thresholds rather than one universal insolvency trigger.

Minimum capital ratios, additional supervisory requirements, capital conservation buffers, and resolution criteria operate at different regulatory stages.

The Banco Popular litigation demonstrates the importance of distinguishing capital deterioration from liquidity failure, while ABLV clarifies procedural boundaries governing judicial challenges.

Effective capital supervision therefore requires accurate regulatory calculations, timely corrective measures, and compliance with EU and Spanish banking legislation.