Reportedly, after a decade long boom, nearly 50 unlisted Spanish savings banks had failed due to the slump in the nation’s property sector.

The Commission found the scheme to be in line with its guidance communications on state aid to overcome the financial crisis. In particular, the measures approved are limited in time and scope, require market-oriented remuneration and contain enough incentives to redeem the state participation over time.

In order to benefit from the scheme, beneficiaries will need to draw up an integration plan, setting out the specific measures and commitments to be implemented in order to achieve an increase of efficiency and solvability. This plan will have to be approved by the Bank of Spain before it is presented to the The Fund for Orderly Bank Restructuring (FROB).

Before each individual bank recapitalization, the FROB will communicate to the EC the results of an assessment of the beneficiary’s risk profile by the Bank of Spain. This will enable the EC to assess the situation in turn and to indicate the necessary follow-up, such as the need to provide a restructuring plan, to pay an adequate remuneration on the convertible preference shares or the need for a ban on coupon payments on hybrid instruments.

Neelie Kroes, commissioner, said: “The Spanish recapitalization scheme will strengthen confidence in the Spanish banking system and, above all, encourage lending to the real economy. At the same time, the scheme establishes sufficient safeguards to limit disproportionate distortions of competition.”

FROB was created to manage the restructuring processes of credit institutions and assist in the enhancement of their equity, on the terms laid down by this Royal Decree-Law.