Banking Law and Constitutional Proportionality in Financial Regulation – Spain

Introduction

The principle of proportionality is an important constitutional and administrative-law control on financial regulation in Spain. It requires public authorities to avoid imposing regulatory burdens, supervisory measures, restrictions or sanctions that go further than reasonably necessary to achieve a legitimate public objective.

In banking regulation, proportionality is particularly significant because the State and European supervisory authorities exercise extensive powers over credit institutions. These powers include capital and liquidity requirements, governance requirements, administrative sanctions, restrictions on banking activities, intervention measures and, in extreme cases, resolution or withdrawal of authorisation.

Spanish banking proportionality cannot be understood exclusively through the Spanish Constitution. Spain participates in the European Banking Union, meaning that the Banco de España, European Central Bank (ECB), Single Resolution Board (SRB), Spanish resolution authorities and courts operate within a combined Spanish-EU constitutional framework.

The essential idea is therefore a balance between financial stability and the protection of constitutional rights and legal certainty.

Constitutional and Legal Framework

The Spanish Constitution does not expressly establish proportionality as an independent general fundamental right. Nevertheless, proportionality follows from several constitutional provisions, particularly Articles 1.1, 9.3, 24, 25 and 53 of the Constitution.

Article 9.3 guarantees legality, legal certainty and the prohibition of arbitrary action by public authorities. Article 25.1 establishes legality in punitive matters and provides important protection against excessive administrative sanctions.

The Constitutional Court has repeatedly explained that proportionality is generally not an autonomous constitutional ground capable of being invoked entirely separately from another constitutional right or principle. Instead, disproportionate state action normally becomes constitutionally relevant because it interferes excessively with another protected right or constitutional guarantee.

At ordinary administrative-law level the principle is explicit. Article 29 of Law 40/2015 on the Legal Regime of the Public Sector requires administrative sanctions to satisfy requirements of suitability, necessity and correspondence with the seriousness of the infringement. Factors such as culpability, persistence, damage and recidivism must be considered.

European Union law adds another constitutional layer. EU institutions exercising banking powers must comply with proportionality under EU law and with fundamental-rights guarantees applicable to EU action.

The Three-Part Proportionality Test

Spanish and European proportionality analysis can broadly be understood through three questions.

Suitability or appropriateness asks whether the regulatory measure is capable of contributing to a legitimate objective. A higher capital requirement, for example, may be appropriate where identified risks threaten a bank's solvency.

Necessity asks whether the objective could reasonably be achieved through a less restrictive measure. Where a narrowly targeted supervisory requirement could adequately correct a weakness, an unnecessarily severe restriction on the institution might raise proportionality concerns.

Proportionality in the strict sense involves balancing the public benefit produced by the measure against the burden imposed on the affected institution or individual.

The Constitutional Court's proportionality jurisprudence requires consideration of legitimate objectives, suitability, necessity and the relationship between the seriousness of conduct and the severity of state intervention. STC 55/1996 became one of the important authorities in developing this framework.

Proportionality in Banking Supervision

Banking supervision provides a particularly strong justification for preventive regulation because bank failures can produce consequences extending beyond shareholders and managers to depositors, creditors and the broader financial system.

Consequently, proportionality does not prevent strict banking regulation.

Instead, it requires supervisory authorities to connect the intensity of intervention to factors such as:

the institution's size and risk profile;

seriousness and duration of regulatory violations;

systemic importance;

financial strength;

harm to customers or third parties;

profits obtained from the infringement;

cooperation with supervisors; and

remedial measures adopted by the institution.

These considerations are expressly reflected in Spanish banking legislation.

Law 10/2014 and Proportionate Banking Sanctions

The principal Spanish legislation governing the organisation, supervision and solvency of credit institutions is Law 10/2014 of 26 June.

Its sanctioning regime distinguishes between very serious, serious and minor infringements and provides different maximum penalties. Very serious banking infringements can expose institutions to extremely substantial sanctions, including fines linked to turnover or benefits derived from misconduct.

Most importantly for proportionality, Article 103 requires sanctions to be determined through factors including the nature of the infringement, degree of responsibility, seriousness and duration, benefits obtained, financial strength of the offender, adverse consequences for the financial system, remediation, compensation of damage, losses to third parties, cooperation and systemic consequences.

Thus Spanish banking legislation itself incorporates individualised proportionality assessment.

Administrative Sanctions and Constitutional Protection

Administrative sanctions are particularly important because financial regulators possess substantial punitive powers.

The Constitutional Court has held that proportionality applies to administrative sanctions through Article 25.1 CE. Nevertheless, the legislature enjoys significant discretion when deciding how serious particular misconduct should be considered.

Judicial intervention normally becomes strongest where there is an unmistakably excessive relationship between the offence and punishment.

In STC 74/2022, the Constitutional Court reiterated that proportionality requires coherence between the seriousness of an administrative infringement and the intensity of its sanction. At the same time, Article 25.1 does not necessarily require legislation always to give the administrative authority an unlimited discretion to adjust the penalty. Legislatures may create predetermined sanctions provided constitutional boundaries are respected.

This principle has direct relevance to banking fines imposed on institutions and directors.

Case Laws

1. STC 55/1996

This is one of Spain's foundational proportionality decisions. The Constitutional Court examined proportionality in relation to constitutional rights and explained that proportionality is not normally an entirely independent constitutional standard.

The case helped establish the familiar analysis of legitimacy, suitability, necessity and proportionality of governmental interference.

Banking significance: intrusive supervisory measures affecting protected interests should possess sufficient justification and should not impose unnecessary burdens.

2. STC 161/1997

The Constitutional Court reinforced the principle that proportionality does not operate as an entirely autonomous constitutional ground. An applicant normally needs to identify the constitutional right or principle affected by disproportionate state action.

This doctrine remains important where banks challenge sanctions or regulatory restrictions as constitutionally excessive.

3. STC 136/1999

This judgment developed the strict proportionality analysis applicable to sanctions. The Court emphasised the relationship between the legitimate objective pursued, the effectiveness of the sanction and the seriousness of the punitive burden.

Later Constitutional Court decisions repeatedly rely on STC 136/1999 when discussing proportionality.

4. STC 188/2005

This judgment concerned the non bis in idem principle. The Constitutional Court explained that preventing multiple sanctions for the same subject, facts and legal basis protects individuals against an excessive punitive reaction.

The Court specifically associated the rule with preventing disproportionate punishment.

Banking significance: overlapping banking, securities, AML or administrative enforcement must respect safeguards against impermissible duplication of punishment.

5. STC 145/2013

The Constitutional Court considered proportionality within an administrative sanctioning framework. It stressed the importance of ensuring that conduct classified as serious actually possesses sufficient seriousness to justify the corresponding statutory penalties.

The Court also recognised the important role of ordinary administrative courts in examining proportionality when legislation is applied to individual cases.

Banking significance: merely possessing statutory authority to impose a substantial fine does not eliminate the requirement to justify how the penalty relates to the particular infringement.

6. STC 74/2022

The Court confirmed that proportionality of administrative sanctions is connected with Article 25.1 CE.

However, it also recognised considerable legislative discretion in constructing sanctioning regimes and rejected the proposition that every statutory sanction must necessarily provide extensive administrative discretion for subsequent reduction.

The decision illustrates the distinction between legislative proportionality and proportionality in individual enforcement.

7. STC 69/2024

The Constitutional Court again addressed proportionality of sanctions and reiterated that the legislature enjoys a wide margin in determining offences and penalties.

Constitutional review is therefore not intended simply to replace the legislature's policy judgment with the court's preferred sanction. Constitutional problems arise particularly where the relationship between wrongdoing and punishment becomes manifestly unjustifiable.

This approach is particularly relevant to large financial-sector penalties.

8. Sber Vermögensverwaltungs AG v ECB, Joined Cases T-647/21 and T-99/22, General Court, 28 February 2024

At EU level the General Court examined supervisory measures imposed in the context of prudential banking regulation and expressly considered proportionality.

The case demonstrates that ECB supervisory decisions within the Single Supervisory Mechanism are subject to EU proportionality review.

Although the proceedings concerned an Austrian institution rather than a Spanish bank, the principle applies directly to Spain because significant Spanish banks are supervised within the same Single Supervisory Mechanism.

Proportionality and the ECB

For significant Spanish banking institutions, many important prudential decisions are taken directly by the ECB.

EU proportionality therefore operates alongside Spanish constitutional principles.

An ECB requirement concerning capital, governance, risk management or supervisory remediation must pursue legitimate prudential objectives and remain appropriately connected to the risks identified.

The General Court's Confédération nationale du Crédit mutuel and Others v ECB (T-189/22, 5 June 2024) illustrates judicial scrutiny of ECB supervisory decisions through principles including proportionality, sound administration and manifest error of assessment. The action was ultimately dismissed.

Such cases demonstrate that judicial review does not prevent strong prudential supervision, but it requires regulatory power to remain legally justified.

Proportionality in Bank Resolution

Proportionality becomes especially difficult during bank failure.

Resolution authorities may employ powerful mechanisms including restructuring, transfers of assets or liabilities and bail-in measures. These interventions can seriously affect shareholders and creditors.

The justification is ordinarily protection of financial stability, depositors and continuity of critical banking functions.

A proportionality assessment therefore examines whether resolution is justified by the public interest and whether the chosen intervention goes beyond what is required to achieve legitimate resolution objectives.

Spain's experience within the European resolution framework, particularly litigation connected with failed financial institutions, demonstrates the tension between protecting property interests and preventing systemic disruption.

Proportionality and Consumer Banking Regulation

The principle also influences regulation protecting borrowers and depositors.

Requirements concerning transparency, responsible lending, mortgage lending, disclosure of charges and unfair contractual terms impose costs on financial institutions. Yet such burdens may be justified by the significant informational inequality between banks and consumers.

Proportionality therefore operates in both directions: regulation must not unnecessarily burden financial institutions, but insufficient regulation may fail to adequately protect consumers and financial stability.

Proportionality and AML Regulation

Anti-money-laundering regulation presents another important example.

Banks must identify customers, monitor transactions and report suspicious activities. These requirements interfere to some extent with privacy, data protection and commercial freedom.

They nevertheless pursue powerful public interests.

Constitutional proportionality requires measures affecting personal information or banking relationships to possess a lawful basis, pursue legitimate objectives and avoid unjustified or excessively broad interference.

Thus proportionality provides a bridge between financial integrity and fundamental-rights protection.

Judicial Review

Measures adopted by Spanish financial authorities may ultimately be reviewed by Spanish administrative courts, while decisions of EU authorities such as the ECB and SRB fall within the EU judicial system.

Courts normally assess whether the authority:

acted within its statutory powers;

pursued a legitimate regulatory objective;

considered relevant circumstances;

supplied adequate reasons;

avoided manifestly excessive measures; and

respected procedural and fundamental-rights guarantees.

Proportionality therefore operates not simply as an abstract constitutional doctrine but also as a standard for reviewing concrete supervisory decisions.

Conclusion

Constitutional proportionality in Spanish financial regulation is best understood as a control on the intensity of regulatory power rather than a prohibition on strict banking regulation.

Financial stability, depositor protection, consumer protection, prevention of financial crime and prudent bank management provide strong constitutional and public-interest grounds for extensive regulation. However, regulatory objectives do not give supervisors unlimited authority.

Spanish constitutional jurisprudence, particularly STC 55/1996, STC 161/1997, STC 136/1999, STC 188/2005, STC 145/2013, STC 74/2022 and STC 69/2024, demonstrates that sanctions and state restrictions must maintain a defensible relationship with their objectives and the seriousness of the regulated conduct.

Within banking law, Article 103 of Law 10/2014 converts this constitutional principle into practical criteria by requiring consideration of responsibility, seriousness, duration, financial capacity, damage, remediation, cooperation and systemic impact when sanctions are determined.

Because Spain belongs to the Banking Union, the final framework is multilevel: Spanish constitutional proportionality, Spanish administrative law, EU proportionality and EU fundamental-rights law operate together. The result is a system intended to permit strong intervention where financial stability genuinely requires it while preventing financial regulation from becoming arbitrary, unnecessarily restrictive or excessively punitive.