Banking Law and Constitutional Legitimacy of Financial Governance in Spain

Introduction

The constitutional legitimacy of financial governance in Spain concerns the legal basis on which public institutions regulate banks, supervise financial markets, manage monetary and financial stability, resolve failing institutions, and intervene in economic activity. Financial governance is constitutionally legitimate only when regulatory power is exercised by legally competent institutions, pursuant to democratically enacted rules, subject to fundamental rights, judicial review, transparency, proportionality and accountability.

Spain presents a particularly complex model because financial authority is distributed among the Spanish State, the Banco de España, autonomous communities and European Union institutions, especially the European Central Bank (ECB), European Commission and Single Resolution Board (SRB).

Consequently, modern Spanish banking governance cannot be understood purely through national constitutional law. It operates through a multi-level constitutional structure combining the Spanish Constitution with EU banking and monetary law.

Constitutional Foundations

The starting point is Article 1 of the Spanish Constitution, establishing Spain as a social and democratic State governed by the rule of law. Financial regulation therefore cannot rest merely upon administrative expertise or economic necessity.

Article 9.3 strengthens this principle by guaranteeing legality, legal certainty, responsibility of public authorities and the prohibition of arbitrary governmental action. Banking supervisors must therefore exercise powers derived from identifiable legal rules rather than unlimited administrative discretion.

Several additional constitutional provisions shape financial governance.

Article 38 recognizes freedom of enterprise within the market economy. Banks therefore enjoy economic freedom, but this freedom exists within regulation designed to protect broader economic interests.

Conversely, Article 128 declares that the country's wealth, irrespective of ownership, is subordinated to the general interest and permits public economic intervention where justified. These two provisions establish an important constitutional balance: private financial enterprise is protected, but financial activity can be heavily regulated because banking stability affects society as a whole.

Article 97 gives the Government responsibility for directing domestic policy and exercising executive and regulatory powers, while Article 103 requires public administration to serve the general interest objectively and operate under law. These provisions provide constitutional foundations for administrative financial regulation while simultaneously limiting governmental discretion.

Distribution of Banking Powers

One of the most important constitutional questions concerns who is constitutionally entitled to regulate finance.

Article 149.1.11 of the Constitution reserves to the State the basic regulation of credit, banking and insurance, while Article 149.1.13 provides an additional foundation concerning coordination and general economic planning.

These provisions allow national authorities to establish a uniform regulatory framework necessary for financial stability, although autonomous communities may retain regulatory or administrative responsibilities within their constitutional and statutory competences.

This division has produced substantial Constitutional Court jurisprudence.

STC 48/1988

In Constitutional Court Judgment 48/1988, disputes arose concerning Catalan and Galician legislation governing savings banks (cajas de ahorro).

The Court recognized that savings banks possessed both financial and regional/social dimensions. Nevertheless, because their credit activities affected the national financial system, the State could establish basic rules under Article 149.1.11.

The Court also imposed an important constitutional limitation: national rules cannot become so exhaustive that autonomous communities are effectively deprived of their constitutionally assigned regulatory space.

This judgment illustrates an important legitimacy principle: financial stability may justify national coordination, but it does not automatically justify unlimited centralization.

STC 49/1988

In STC 49/1988, the Constitutional Court further considered powers involving supervision, inspection and sanctions concerning savings banks.

The judgment emphasized that competences cannot simply be created by ordinary legislation; their constitutional foundation must ultimately come from the Constitution and Statutes of Autonomy.

Therefore, administrative efficiency alone cannot legitimize financial authority.

Independence of the Banco de España

Central-bank independence creates one of the central tensions in constitutional financial governance.

The Banco de España has statutory autonomy under Law 13/1994. Among its functions are contributing to monetary functions within the European system and promoting the stability and proper functioning of the financial system and payment systems.

Independence is regarded as important because monetary and supervisory decisions may require technical judgments insulated from short-term political pressure.

Nevertheless, independence cannot mean freedom from constitutional accountability.

Legitimacy therefore depends upon several mechanisms:

• statutory specification of institutional powers;
• parliamentary accountability;
• reasoned administrative decision-making;
• disclosure within legitimate confidentiality requirements;
• judicial review; and
• EU and national institutional oversight.

The Banco de España statute itself establishes mechanisms for parliamentary access to certain protected information through its Governor.

Thus Spanish constitutional law seeks to reconcile expert independence with democratic accountability.

EU Banking Union and the Legitimacy Problem

Spain's membership in the EU radically transformed financial governance.

Major Spanish banks may be supervised within the Single Supervisory Mechanism, centred upon the ECB, while failing banks may come under the Single Resolution Mechanism, involving the SRB and other EU institutions.

This generates what scholars often characterize as a legitimacy challenge: decisions profoundly affecting Spanish depositors, shareholders and institutions can be taken partly outside ordinary Spanish governmental structures.

Such governance nevertheless obtains its legal legitimacy through Spain's participation in the EU constitutional system and the binding EU treaties and legislation, together with judicial supervision by EU courts.

The Banco Popular litigation provides the clearest illustration.

Banco Popular Resolution Litigation

In June 2017, Banco Popular experienced severe liquidity deterioration. The SRB concluded that the institution was failing or likely to fail and adopted a resolution scheme. Its capital was written down and the business transferred to Banco Santander.

The resolution sought continuity of critical banking functions and prevention of serious consequences for financial stability.

The enormous litigation that followed illustrates several constitutional legitimacy questions:

Can extraordinary financial intervention override shareholders' ordinary legal rights?

How much procedural protection is required during an emergency bank resolution?

How transparent must regulators be?

How should property rights be balanced against systemic financial stability?

García Fernández and Others v Commission and SRB, C-541/22 P

The litigation culminating in García Fernández and Others v Commission and SRB (C-541/22 P) examined the legality of the Banco Popular resolution and issues including resolution conditions, valuation, confidentiality, access to information and statements made during the crisis.

The Court of Justice delivered its judgment on 4 October 2024.

The case demonstrates that technically complex crisis decisions remain legally reviewable. Financial stability therefore does not create an area completely insulated from judicial scrutiny.

ACMO and Others v SRB, T-330/20

Following Banco Popular's resolution, affected shareholders and creditors argued that they should receive compensation.

In ACMO and Others v SRB, the General Court considered the SRB decision refusing compensation and examined the valuation determining how investors would have been treated under ordinary insolvency proceedings.

The dispute included questions concerning the independence of the valuer.

This case illustrates an essential legitimacy safeguard of modern resolution law: even when investors suffer losses to preserve financial stability, authorities must apply predetermined legal rules concerning valuation and creditor treatment.

Molina Fernández v SRB, T-304/20

The General Court dealt with comparable questions in Molina Fernández v SRB, including valuation and whether compensation was owed to shareholders or creditors affected by Banco Popular's resolution.

Such litigation shows that regulatory legitimacy depends not merely upon achieving financial stability but upon procedurally lawful distribution of losses.

Banco Santander — Banco Popular III, C-687/23

A particularly significant development came with the Court of Justice judgment of 11 September 2025 in C-687/23.

The case involved claims connected with capital instruments issued before Banco Popular's resolution. The Court distinguished claims already brought before resolution from claims initiated only afterwards and held that certain rights accruing before resolution could remain enforceable against Banco Santander as successor.

The judgment is important constitutionally because it prevents bank resolution from automatically eliminating every previously existing private legal claim.

It reflects the broader rule-of-law principle that crisis governance must remain subject to defined legal boundaries.

Regional Autonomy and Financial Governance

Spanish constitutional legitimacy also depends upon maintaining the correct relationship between central and autonomous institutions.

In STC 151/2011, the Constitutional Court concluded that Andalusia possessed competence concerning aspects of the internal organization of certain savings banks situated within its territory, although that authority remained subject to basic state banking legislation.

Similarly, STC 138/2011 emphasized that the State cannot automatically rely upon its powers over international relations to absorb regulatory matters otherwise belonging to autonomous communities.

These judgments reinforce the idea that constitutional competence itself constitutes a source of legitimacy.

STC 182/2013 and Financial-Crisis Governance

The financial crisis significantly increased central intervention in Spanish banking institutions.

STC 182/2013 considered measures connected with restructuring credit institutions and reiterated that state authority under Articles 149.1.11 and 149.1.13 can justify substantial intervention.

However, the Court emphasized that exhaustive national regulation or centralization of executive powers requires particularly strong justification and may only be permissible where genuinely necessary for the exercise of national competence.

Thus even during financial emergencies, constitutional competence is not automatically suspended.

Fundamental Rights and Judicial Protection

Financial governance must also respect fundamental rights.

Article 24 of the Constitution protects effective judicial protection, procedural defence and access to courts.

Consequently, sanctions, licence withdrawals, regulatory decisions, bank resolutions and other administrative measures must generally remain capable of judicial scrutiny.

Likewise, Article 9.3's guarantees of legal certainty and prohibition of arbitrary action mean that regulators should act under sufficiently clear legislation and give legally defensible reasons for intervention.

These safeguards are particularly important because modern financial regulators exercise unusually powerful tools: capital requirements, supervisory investigations, administrative sanctions, restrictions upon business activity and bank-resolution powers.

Fiscal Stability and Democratic Legitimacy

Financial legitimacy also extends beyond bank supervision.

Article 135 requires public authorities to observe budgetary stability and connects Spain's fiscal framework directly with EU requirements.

At the same time, Articles 133 and 134 maintain parliamentary control over taxation and public expenditure.

Spanish constitutionalism therefore combines fiscal discipline with parliamentary authorization, preventing purely technocratic financial administration from replacing representative political decision-making.

Conclusion

The legitimacy of financial governance in Spain rests on a carefully constructed balance between democracy, constitutional legality, economic expertise and financial stability.

The Spanish Constitution authorizes extensive intervention in banking because finance affects the public interest. Articles 38 and 128 balance market freedom against public economic regulation; Articles 97 and 103 require lawful and objective administration; Article 149.1.11 supports nationwide banking regulation; Article 24 guarantees judicial protection; and Article 9.3 prohibits arbitrary public power.

Cases such as STC 48/1988, STC 49/1988, STC 151/2011, STC 138/2011, STC 182/2013, García Fernández, ACMO, Molina Fernández and the Banco Santander/Banco Popular litigation demonstrate that financial stability does not itself provide unlimited governmental authority.

The central constitutional principle is therefore straightforward: Spanish financial governance is legitimate not simply because regulators protect markets, but because they do so through legally conferred powers, proportionate intervention, institutional accountability and effective judicial review. In the contemporary Banking Union, this principle operates simultaneously through Spanish constitutional law and EU law, creating a multi-level system in which regulatory independence must continuously be reconciled with democracy and the rule of law.