Banking Law and Hybrid Public–Private Banking Models in Spain

1. Introduction

A hybrid public–private banking model in Spain refers to arrangements in which banking activity combines private commercial ownership or management with public-sector participation, control, guarantees, capital support, or institutional oversight.

Spain provides an important example because its banking system historically included savings banks (cajas de ahorros), institutions with a distinctive social/public-interest character but substantial banking operations. During the financial crisis, many cajas were reorganised, converted into banks, merged, recapitalised with public funds, or placed under resolution mechanisms.

A major legal transformation occurred through reforms such as Royal Decree-Law 11/2010, which allowed savings banks to conduct financial activity indirectly through a banking entity and contemplated their transformation into special foundations in certain circumstances.

The 2012 Spanish banking-support programme further illustrates the hybrid model: Spain used approximately €38.9 billion for bank recapitalisation and restructuring, while the programme required restructuring, resolution, governance reforms and private-sector burden sharing.

2. Meaning of a Hybrid Public–Private Banking Model

A hybrid model can be represented as:

Public authority / public capital / public guarantee
↓
Banking institution
↓
Private shareholders + depositors + creditors + customers
↓
Commercial banking activity

The bank may remain commercially oriented while being subject to significant public intervention.

Main forms

3. Historical Background: Spanish Savings Banks

The cajas de ahorros were central to the development of Spain's hybrid banking structure.

They were not ordinary shareholder-owned commercial banks. They had a strong social and regional orientation and historically operated through a governance structure involving representatives of various stakeholders.

However, over time, savings banks became increasingly involved in conventional banking activities, including:

• mortgages;
• corporate lending;
• real-estate finance;
• deposits;
• investment products;
• retail banking.

This created an unusual combination:

social/public-interest institutional structure + commercial banking activity.

The 2010 reform specifically introduced a model under which a savings bank could carry out its financial activity indirectly through a bank. The banking entity generally had to remain controlled by the savings bank, including a requirement concerning at least 50% of voting rights under the statutory model.

4. Why Spain Moved Away from the Traditional Hybrid Model

The financial crisis exposed weaknesses in several savings banks.

Important problems included:

1. excessive exposure to real estate;
2. weak capitalisation;
3. governance difficulties;
4. political and regional influence;
5. concentration of credit risk;
6. insufficient risk-management systems;
7. difficulties raising private capital.

The legal response therefore sought to separate:

social/foundation functions

from

commercial banking functions.

This produced a gradual movement toward a banking system dominated by conventional banking companies, while public authorities retained important powers over capital, supervision and resolution.

5. Legal Framework

A. Royal Decree-Law 11/2010

Royal Decree-Law 11/2010 substantially redesigned the legal organisation of savings banks.

Two important alternatives were developed:

Model 1 — Indirect banking activity

The savings bank could maintain its legal identity while conducting banking business through a separate bank.

Model 2 — Transformation into a foundation

A savings bank could transform into a special foundation and transfer its banking business to another credit institution.

This was an important step in separating the social mission of the institution from the commercial banking enterprise.

6. FROB and Public Intervention

The Fondo de Reestructuración Ordenada Bancaria (FROB) became a central institution in restructuring Spanish banks.

Its role included:

• recapitalisation;
• restructuring;
• resolution;
• acquisition or disposal of banking interests;
• management of hybrid instruments;
• implementation of restructuring plans.

The BFA–Bankia restructuring illustrates this mechanism particularly clearly.

In 2012, the FROB provided substantial capital support to BFA, including a €4.5 billion capital injection, while the wider restructuring plan involved much larger estimated capital requirements.

This demonstrates the hybrid character of the model:

Public money → banking company → private/commercial banking activity

but with strict restructuring conditions.

7. EU State-Aid Law

Spanish hybrid banking arrangements cannot be examined only under Spanish law.

EU State-aid rules are extremely important.

Under Articles 107 and 108 TFEU, government assistance to undertakings can constitute State aid and may require European Commission assessment.

For Spain's banking crisis, the European Commission imposed conditions concerning:

• recapitalisation;
• restructuring;
• disposal of assets;
• reduction of risk;
• governance;
• burden-sharing;
• protection of competition.

Spain's 2012 financial assistance programme specifically linked bank restructuring to EU State-aid rules.

8. Banking Union and Resolution Law

Spain is also subject to the European Banking Union framework.

Important institutions include:

• European Central Bank (ECB);
• Single Resolution Board (SRB);
• FROB;
• Banco de España;
• European Commission.

This creates a multi-level regulatory structure:

Spanish law
↓
Spanish banking authorities
↓
EU banking legislation
↓
ECB/SRB/European Commission

Therefore, a hybrid bank can be affected simultaneously by national corporate/banking law and EU resolution/state-aid rules.

9. Case Law

Below are more than six important cases relevant to Spanish public–private banking structures, restructuring and resolution.

Case 1 — Iglesias Gutiérrez and Rion Bea v Bankia

Joined Cases C-352/14 and C-353/14, CJEU, 15 October 2015

This is one of the most important cases concerning Bankia and public restructuring.

The dispute arose against the background of the restructuring of the BFA–Bankia group.

The Spanish authorities had notified the European Commission of a restructuring plan involving BFA and Bankia. The Commission treated the restructuring measures as State aid but considered them compatible with the internal market subject to conditions.

Legal significance

The case demonstrates that restructuring of a bank receiving public support is not merely a private employment or corporate matter.

It can be directly connected with:

• EU State-aid law;
• restructuring conditions;
• public financial support;
• employment consequences.

The Court dealt with the relationship between Commission-approved restructuring measures and national rules concerning employee dismissal compensation.

Principle

Public support can lawfully be accompanied by restructuring conditions that have consequences for the internal organisation of a bank.

10. Case 2 — Bankia SA and Others / Bankia Restructuring Context

The BFA–Bankia restructuring itself generated extensive litigation before Spanish and European courts.

The Spanish restructuring framework resulted in:

• FROB participation;
• capital restructuring;
• treatment of hybrid instruments;
• transfer of impaired assets;
• restructuring of Bankia.

The FROB's 2013 implementation decision specifically referred to the restructuring plan approved by the Spanish authorities, Banco de España and European Commission.

Legal significance

It illustrates a fundamental characteristic of Spain's hybrid model:

A privately operating banking company can become subject to extensive public restructuring powers when systemic financial stability is threatened.

11. Case 3 — Del Valle Ruíz and Others v SRB

Joined Cases T-302/20, T-303/20 and T-307/20, General Court, 22 November 2023

This case concerned the resolution of Banco Popular Español.

The applicants included former shareholders affected by the resolution.

The General Court considered issues involving:

• right to property;
• right to be heard;
• effective judicial protection;
• valuation;
• independence of the valuer;
• compensation following resolution. 

Legal significance

The case demonstrates that public intervention does not eliminate shareholder or creditor rights.

However, resolution law can impose substantial restrictions where necessary to achieve legitimate financial-stability objectives.

12. Case 4 — García Fernández and Others v Commission and SRB

Case C-541/22 P, CJEU, 4 October 2024

This case concerned the resolution of Banco Popular and the operation of the Single Resolution Mechanism.

Issues included:

• resolution objectives;
• conditions for adopting a resolution scheme;
• valuation;
• confidentiality;
• access to the administrative file;
• obligations of the SRB and Commission. 

Legal significance

The judgment illustrates the extensive regulatory structure surrounding a failing bank.

The relevant decision-making chain may involve:

Bank → national authorities → SRB → European Commission → judicial review

rather than ordinary shareholder-controlled corporate decision-making.

13. Case 5 — Liaño Reig v SRB

Case T-557/17

The case concerned Banco Popular's resolution and challenges connected with compensation following the resolution.

The General Court addressed procedural questions surrounding actions against the SRB and the resolution mechanism.

Importance

The case demonstrates that resolution decisions operate within a specialised European legal framework.

The shareholder's ordinary corporate-law remedies cannot simply be treated as equivalent to remedies against a normal private-company transaction.

14. Case 6 — Molina Fernández v SRB

Case T-304/20, General Court, 22 November 2023

This litigation concerned whether shareholders and creditors affected by Banco Popular's resolution should receive compensation.

The Court examined:

• difference-in-treatment valuation;
• independence of the valuer;
• shareholder and creditor protection. 

Principle

Resolution must respect the legal protection of affected investors, but compensation depends on the statutory no-creditor-worse-off and valuation framework.

This is particularly important for hybrid public-private banking because public authorities may intervene without automatically assuming all losses suffered by private investors.

15. Case 7 — Relea Álvarez and Others v SRB

Case T-653/17

This case concerned challenges connected with the Banco Popular resolution.

The General Court's 2025 order dealt with the admissibility of an action seeking annulment and damages relating to the resolution scheme.

Importance

It demonstrates that judicial review of public intervention in banking is structured around specific procedural and legal requirements.

Not every preparatory or intermediate regulatory act necessarily constitutes an independently challengeable act.

16. Case 8 — Hernández Díaz v SRB

Case T-521/17

This was another Banco Popular-related proceeding concerning challenges to the resolution scheme.

The General Court addressed whether the challenged resolution measure constituted an actionable measure for purposes of Article 263 TFEU. The action was dismissed as manifestly inadmissible.

Principle

Bank-resolution litigation is strongly influenced by the EU institutional structure and by the distinction between:

• preparatory acts;
• final decisions;
• legally binding measures.

17. Case 9 — Caixabank v Commission

Joined Cases T-700/13 and others

The proceedings involved Spanish applicants including Caixabank, formerly Bankia, in litigation concerning EU State-aid rules.

The General Court's 2024 judgment addressed issues including:

• State aid;
• recovery;
• Article 107 TFEU;
• competence between the Commission and national authorities. 

Although the underlying dispute concerned the Spanish tax-lease system rather than ordinary bank recapitalisation, the case is relevant to the wider legal environment in which Spanish banking groups operate.

18. Case 10 — Spain v Commission

Case T-515/13 RENV

This litigation involved Spanish State-aid measures and the European Commission's authority in the context of EU State-aid control.

The General Court ultimately dismissed the relevant actions.

Significance

It reinforces the principle that national banking or financial measures can be reviewed through EU State-aid law where public resources or State measures provide economic advantages.

19. Bankia Prospectus Litigation

Spanish Supreme Court litigation concerning Bankia's initial public offering also became significant.

The Spanish Supreme Court repeatedly considered the accuracy of the information contained in Bankia's IPO prospectus. A 2022 Supreme Court summary referred to earlier judgments including Judgments 23/2016, 24/2016, 382/2019 and 890/2021, concerning serious inaccuracies in the prospectus.

Importance for hybrid banking

This demonstrates another side of public-private banking:

Even where the State becomes involved in restructuring a bank, ordinary investor-protection and securities-law obligations remain relevant.

20. Core Legal Principles

Principle 1 — Public ownership does not automatically make a bank a public authority

A bank may have substantial public ownership while remaining a separate legal person carrying on commercial activity.

Principle 2 — Public support is conditional

Government recapitalisation generally cannot be understood as an unconditional transfer of money.

It may involve:

• restructuring;
• asset disposal;
• governance changes;
• capital measures;
• burden sharing;
• restrictions on expansion.

Spain's 2012 programme expressly incorporated such conditions.

Principle 3 — EU State-aid law controls public intervention

The Spanish Government cannot simply provide unlimited financial advantages to a bank without considering EU State-aid requirements.

Principle 4 — Private shareholders bear risks

A hybrid structure does not guarantee private investors against losses.

The Banco Popular litigation demonstrates that shareholders and creditors can be subject to resolution measures that substantially affect their property interests.

Principle 5 — Public authorities must still respect legal safeguards

Resolution authorities must operate within:

• statutory powers;
• proportionality requirements;
• property rights;
• procedural rights;
• judicial-review mechanisms.

The Banco Popular cases repeatedly examined these safeguards.

21. Public–Private Banking Model: Legal Structure

A simplified Spanish model can be shown as follows:

Government / FROB / EU institutions
↓
Capital support / restructuring / resolution powers
↓
Banking company
↓
Private shareholders + creditors + customers
↓
Commercial banking operations

At the same time:

Banco de España + ECB + SRB + European Commission

exercise regulatory and supervisory functions.

Thus, the model is neither purely public nor purely private.

22. Advantages of the Hybrid Model

1. Financial stability

Public intervention can prevent disorderly failure of systemically important institutions.

2. Continuity of banking services

Depositors and customers can continue receiving banking services during restructuring.

3. Social objectives

The historical savings-bank structure allowed banking institutions to maintain social and regional objectives.

4. Crisis management

Public capital can provide temporary support where private capital is insufficient.

5. Resolution capability

Modern EU resolution law provides mechanisms for dealing with failing banks without relying exclusively on traditional taxpayer-funded bailouts.

23. Legal Risks

A. Moral hazard

If banks expect government support, they may have weaker incentives to control risk.

B. Political influence

The historical cajas model demonstrated the potential difficulty of combining banking decisions with regional or political interests.

C. Competition distortion

Public financial support may give an assisted bank advantages over competitors, triggering EU State-aid concerns.

D. Investor disputes

Recapitalisation and resolution can significantly affect shareholders and subordinated creditors.

E. Governance problems

Mixed public-private ownership can produce conflicts between:

• commercial objectives;
• public-interest objectives;
• shareholder interests;
• financial-stability objectives.

24. Modern Position in Spain

The Spanish system today is considerably different from the traditional savings-bank model.

The post-crisis framework emphasises:

• commercial banking companies;
• stronger capital requirements;
• European supervision;
• FROB intervention;
• Banking Union;
• Single Resolution Mechanism;
• bail-in;
• private-sector burden sharing;
• investor and consumer protection.

Spain's experience demonstrates a movement from institutionally hybrid savings banks toward commercial banks operating within a highly public regulatory and resolution framework.

The European Commission records that Spain exited its financial-assistance programme in January 2014 after approximately €38.9 billion had been used for bank recapitalisation, alongside restructuring and resolution measures.

25. Difference Between the Old and Modern Models

26. Conclusion

Spain provides an important example of how public and private banking functions can coexist within one financial system.

Historically, the cajas de ahorros combined social/public-interest characteristics with commercial banking. The financial crisis revealed difficulties in that structure and encouraged legal reforms that separated banking operations from social/foundation functions.

The resulting system is better described as a regulated public-private banking framework rather than direct state banking. Banks can remain commercially organised and privately owned while being subject to extensive intervention by FROB, Banco de España, ECB, SRB and the European Commission.

The Bankia and Banco Popular litigation demonstrates the central legal tension:

Private ownership and investor rights must coexist with public powers necessary to protect financial stability.

The major cases discussed above show that Spanish hybrid banking law therefore involves three overlapping areas:

1. Spanish banking and corporate law;
2. EU State-aid and competition law; and
3. EU Banking Union and resolution law.

Together, these rules create the modern Spanish model in which private banking activity operates within a strong public regulatory, supervisory and crisis-resolution framework.