Spain: Caja de Ahorros Castilla–La Mancha Emergency Liquidity Assistance, 2009

In late 2008, most of CCM’s funding was wholesale, and its investments were concentrated both regionally and in assets, with more than 40% of CCM’s credit portfolio in loans to real estate developers. When real estate markets began to suffer losses in 2008, CCM’s loan portfolio was heavily exposed (more than 80% of its nonperforming loans were real estate investments). By the end of 2008, CCM had suffered upwards of EUR 600 million in loan losses, leaving CCM with a EUR 1.4 billion regulatory capital shortfall by the end of 2008. The BoS later estimated CCM’s actual loan losses were much higher. The BoS was generally aware of CCM’s risks and had placed CCM under “special monitoring”; the BoS had sent supervisory recommendations to CCM about its risk profile since 2003, and two BoS inspections of CCM in 2008 reiterated previous concerns about the volume of risks (EC 2010; Fernández Ordóñez 2009).

The combination of contractions in the interbank credit markets and successive credit-rating downgrades as a result of CCM’s weakness resulted in CCM’s inability to make up for lost wholesale funding. Additionally, retail depositors began to run on CCM amid media reports about CCM’s challenges—in the first quarter of 2009, CCM retail depositors withdrew EUR 654 million in deposits (CCM 2010; Fernández Ordóñez 2009). At the time, the FGD insured deposits in cajas up to EUR 100,000 (Vergara 2022). Normally, a Eurosystem bank in CCM’s position would turn to the ECB’s standing financing facilities to obtain liquidity, but CCM lacked eligible collateral to tap those facilities. Moreover, CCM was unable to expeditiously liquidate its assets at non-fire-sale prices (EC 2010).

As a result of CCM’s deteriorating liquidity position and inability to obtain ECB liquidity owing to lack of eligible collateral, CCM requested a provision of emergency liquidity from the BoS in February for an amount of EUR 475 million, subsequently increased to EUR 900 million (CCM 2010).

Meanwhile, the bank’s auditor, Ernst & Young, determined the bank was insolvent and refused to certify CCM’s 2008 annual accounts. Ernst & Young’s audit report, provided to Unicaja, a Málaga-based caja and potential acquirer of CCM, on March 25, showed a EUR 3 billion solvency gap. Ernst & Young’s refusal to sign the annual report led to the failure of CCM’s proposed merger with Unicaja, thereby forcing the BoS to intervene (Cacho 2009; Santos 2017).

In a speech to the Commission of Economy and Finance in Parliament on April 2, 2009, BoS Governor Miguel Fernández Ordóñez said that CCM’s position had deteriorated sufficiently by Friday, March 27, that, in the absence of government assistance, it would have faced a severe depositor and wholesale funding run at the open of financial markets on Monday, March 30 (Fernández Ordóñez 2009). While the BoS said that CCM was solvent, the media reported that CCM was neither solvent nor viable.

Spanish authorities said that a disorderly failure of CCM would result in (a) contagion spreading through the Spanish financial system as other cajas de ahorros could also face a lack of depositor confidence resulting in a tightening of funding conditions in the wholesale markets and (b) regional economic impacts (EC 2010).

CCM fully repaid the February ELA, and on March 29, 2009, the BoS decided to replace that funding with an ELA amounting to EUR 9 billion to CCM to safeguard its future owing to its regulatory capital and financial outlook (BoS 2009; EC 2010). The BoS said that CCM was solvent and that it intervened after private solutions were deemed unviable when proposed mergers of CCM with other cajas failed to materialize (Fernández Ordóñez 2009).

The BoS also wanted to prevent an expensive outcome that would have been ultimately shouldered by the taxpayers, regardless of the fact that CCM represented less than 1% of the assets in the Spanish banking system (BoS 2009).

CCM also had a non-ELA secured credit agreement with the BoS. In 2008, CCM drew EUR 2.9 billion out of EUR 3.3 billion available under this arrangement. In 2009, CCM drew EUR 2.3 billion out of EUR 2.7 billion available. The BoS also discounted ECB-eligible paper for CCM (2008: EUR 728.3 million; 2009: EUR 49.8 million) (CCM 2010).

The FGD provided a capital injection worth EUR 1.3 billion in preference shares on April 27, 2009 (for further details, see Arnold and Swaminathan [2024]) (EC 2010).

Spanish authorities and the Spanish government–appointed directors of CCM restructured the bank in the form of a structured acquisition by another caja of CCM’s banking activities (the “good bank”) and by the FGD’s assumption of CCM’s nonbanking activities (the “bad bank”).

Good Bank

The Acquisition Measure. CajAstur, through its banking subsidiary Banco Liberta, acquired a net EUR 23.2 billion of assets from CCM. To reach its required 8% Tier 1 capital ratio (the standard was 4% at the time), CajAstur would inject EUR 410 million into Banco Liberta, while CCM would transfer EUR 442 billion of assets and liabilities to Banco Liberta. The parties would fully reimburse the outstanding EUR 1.2 billion of ELA to the BoS (EC 2010).

Asset Guarantee Measure. As part of the restructuring, the FGD provided a five-year guarantee (which could be rolled over for an additional two years) on a EUR 7.7 billion portfolio of impaired assets (loans and credit facilities) acquired by Banco Liberta, for losses of up to EUR 2.5 billion in excess of the first EUR 1.2 billion in losses (to be borne by Banco Liberta) (EC 2010).

Liquidity-in-Resolution Measure. The FGD also provided liquidity to support CCM’s restructuring. This EUR 350 million loan was meant to help settle some CCM subordinated liabilities that could not contractually be transferred to its acquirer (CajAstur through its banking subsidiary Banco Liberta). The loan allowed EUR 442 million of CCM banking assets to be transferred to Banco Liberta in order for the latter to reach its 8% Tier I capital ratio requirement. The duration of the loan was nine months (EC 2010). The FGD charged the fixed portion of a nine-month mid-swap rate plus 20 basis points (bps), which the European Commission (EC) said did not appear to be risk-appropriate pricing, but instead that such pricing was driven by the need to “satisfy legal constraints” regarding the subordinate liabilities’ ineligibility for transfer to Banco Liberta (EC 2010, 27).

Bad Bank

The FGD assumed CCM’s nonbanking assets and liabilities (those that were neither its core banking activities nor its charity work), which it set off against its EUR 1.3 billion capital injection and EUR 350 million liquidity provision (both of which came from the FGD). The FGD would sell the assets over seven years, subject to a loss-sharing agreement with CCM, whereby CCM would be required under adverse loss scenarios to transfer a share of its equity in Banco Liberta to the FGD (EC 2010).

Continuity of CCM’s Charitable Work

The remaining CCM organization surrendered its banking license and reorganized into a charitable foundation, the CCM Foundation, which would continue CCM’s legacy charity work in the region of Castilla–La Mancha. The CCM Foundation would retain a 25% stake in Banco Liberta (60% of which guaranteed FGD losses on the bad bank—see previous paragraph), the dividends from which (subject to an annual cap of EUR 11 million) would support the CCM Foundation’s regional charity work (EC 2010).

Bank of Spain: Emergency Liquidity

Article 9 of the Law of Autonomy of the Bank of Spain (Law 13/1994) authorized the BoS to, inter alia, engage in repurchase agreement (repo) transactions, borrow and lend, and conduct credit operations generally with market participants (Spanish Government 1994, vol. Law 13/1994, art. 9). While Article 9 (and Law 13/1994 generally) does not explicitly authorize the provision of ELA, the BoS viewed that authority as necessary to the performance of the BoS’s core functions. The BoS interpreted its authority narrowly, so as only to authorize the provision of liquidity to credit institutions; according to an IMF report, the BoS limits ELA lending to credit institutions because they are subject to BoS supervisory oversight (IMF 2012).

EU and ECB Legal Authority

As a member of the EU, [nation] must comply with the prohibition on monetary financing contained in Article 123(1) of the Treaty on the Functioning of the European Union (TFEU)^FNThe TFEU, itself based on the Treaty of Maastricht of 1992, is one of the EU’s two foundational treaties (the other being the Treaty on European Union). It sets out in detail the principles and objectives of the EU and the scope and functional responsibilities of EU institutions (the Treaty on European Union in contrast defines the EU’s purpose and lays out its institutions and form). As a technicality, before the Lisbon Treaty came into effect in 2009, TFEU Article 123 was Article 101 of the Treaty Establishing the European Community, but the content was unchanged when the Lisbon Treaty relocated the article., which reads (emphasis added): 

TFEU Article 123 prohibits the extension of liquidity to insolvent firms (at least without a state guarantee), as such is considered a public undertaking (in other words, one that should be supported with state resources). While the ECB has its own implementing agreements and procedures to ensure compliance with TFEU Article 123 within the Eurosystem (see Key Design Decision No. 5, Governance), they are not legally binding.^FNThat is to say that those agreements and procedures implement EU law, but are not themselves legally enforceable. Any legal actions resulting from a violation of the monetary financing prohibition would be enforced as EU law and, in practice, the issues are raised by the European Commission. See Arnold (2025). The monetary financing prohibition—including its application to emergency liquidity—is EU-level law, and thus applies even to those nations that are Member States of the EU but not members of the Eurosystem. (For more on the application of the monetary financing prohibition to ELA, see Arnold [2025].) When speaking to parliament, the BoS governor referenced the TFEU’s prohibition on monetary financing as the reason the BoS obtained a state guarantee (Fernández Ordóñez 2009).

Article 14.4 of the Statue of the European System of Central Banks and of the European Central Bank (ESCB) authorizes the ECB’s Governing Council to, with a two-thirds vote, prohibit the provision of ELA by a national central bank if it “[interferes] with the objectives and tasks of the ESCB” (EU 2009a). The ESCB, by virtue of being annexed (as protocol no. 4) to the TFEU in 2009,^FNBefore the Lisbon Treaty, in protocol no. 3 of the Treaty Establishing the European Community, as amended in 1997. has the same legal character as the TFEU. That is to say, although the ECB Governing Council may, from time to time, publish non-legally-binding procedural guidance, its authorization to prohibit or suspend national central bank activities under Article 14.4 of the ESCB is legally binding and statutory in nature. In practice, the ECB Governing Council has cited suspected TFEU Article 123 violations when suspending ELA provision by a national central bank (see Arnold [2025] and Key Design Decision No. 5, Governance). 

State Guarantee

On March 29, 2009, the Spanish government enacted Royal Decree Law No. 4/2009 that enabled the government to guarantee up to EUR 9 billion of ELA made available by the BoS. Ultimately, the Treasury guaranteed only up to EUR 3 billion of the BoS ELA (although the BoS did not forecast drawings on the credit line exceeding EUR 3 billion). Pursuant to Royal Decree Law No. 4/2009, the minister of economy and finance would grant the guarantees and if the guarantees were executed, the Savings Bank Deposit Guarantee Fund would reimburse the Treasury the amount of insured deposits at CCM (Carlos and Zapatero 2009).

The BoS administered the ELA lines disbursed in February and March 2009; moreover, the BoS said that it requested that the Spanish Treasury provide a state guarantee in March 2009 (EC 2010; IMF 2012). These concerns included a possible crisis of confidence in the bond markets and a probable bank run that could lead to a collapse of liquidity (Fernández Ordóñez 2009). In response to this, the Spanish government enacted Royal Decree Law No. 4/2009 to implement the guarantee (see Key Design Decision No. 3, Legal Authority).

The BoS did not disclose in advance (or publicly) its ELA terms and conditions, consistent with its “constructive ambiguity” policy. The BoS was supported in its ELA provision by its directorate of general operations, markets and payments system and bank supervisors (IMF 2012).

Pursuant to Article 14.4 of the ESCB, the ECB Governing Council can, with a two-thirds vote, prohibit ELA provision by a national central bank (see Key Design Decision No. 3, Legal Authority). During the Global Financial Crisis and the European Sovereign Debt Crisis, the ECB Governing Council made that determination, variously suspending national central bank ELA and conditioning further approval for it on policy changes in the country in question (Arnold 2025).

Although the ECB Governing Council’s ability to suspend national central bank ELA existed since well before the official publication of any guidelines, the ECB began to publicize non-legally-binding guidance on its ELA expectations in 2013. At that time, it published its ELA Procedures, which outlines numerous ex post reporting requirements, including, inter alia, amount, interest rate, collateral, supervisory assessment, and motivating reason (ECB 2013). Further, if ELA exceeds EUR 500 million, the relevant national central bank must alert the ECB Governing Council as soon as possible of the extension of ELA before the fact. Under the ELA Procedures, any ELA exceeding EUR 2 billion will be automatically reviewed by the ECB Governing Council to ensure that it does not merit suspension or alteration resulting from its interference in ECB tasks and responsibilities as outlined in ESCB Article 14.4 (ECB 2013).

In 2017, the ECB published its Agreement on Emergency Liquidity Assistance, which provided further guidance on the ECB’s policies regarding ELA and replaced the earlier 2013 ELA Procedures (ECB 2017b). In the 2017 agreement, the ECB added language that clarified the limitations of the prohibition on monetary financing: “this document acknowledges that ELA must be in compliance with the prohibition of monetary financing (Art. 123 of the Treaty of the Functioning of the European Union [TFEU])” (ECB 2017a). It added further guidance to ELA procedures, requiring, inter alia, a funding plan within two months of the first extension of ELA, a letter to the president of ECB regarding the ELA if provided for more than six months, compliance with various solvency requirements, and a penalty interest rate. The ECB revised its ELA agreement in 2020 and most recently in 2024. 

The Banking Communication (which refers to the European Commission’s [EC’s] communication on the application of State Aid rules)^FNDuring the GFC, the EC adopted six types of communication collectively labeled Crisis Communication to analyze the application of State Aid rules. These were: the Banking Communication, the Recapitalization Communication, the Impaired Assets Communication, the Restructuring Communication, the 2010 Prolongation Communication, and the 2011 Prolongation Communication (EC 2013). established the framework for assessing the provision of funds to financial institutions in difficulties with regard to the financial crisis (EC 2008). At the same time, the state guarantee was subject to EC State Aid rules (EC 2010). Figure 2 shows the dates on which EC requested information about CCM interventions (including but not limited to the ELA and state guarantee thereof) and the dates on which the Spanish authorities in turn provided that information. 

The EC reviewed the state guarantee on the ELA provided by the BoS, concluded that it constituted State Aid, and found it compatible with the conditions of Article 107(1) of the TFEU. The EC said that, insofar as the state’s guarantee on the ELA prevented CCM’s market deterioration, it distorted competition and, as a result, constituted State Aid. With respect to the compatibility of the State Aid with the TFEU the EC reviewed the state guarantee on the ELA for compatibility on the basis of whether it was compatible with restructuring aid, based on the restructuring plan submitted by Spain to the EC (EC 2010).

The BoS governor addressed the Spanish Parliament within four days of the extension of the ELA and described the BoS’s motivation for extending the assistance (Fernández Ordóñez 2009). With respect to the restructuring process—of which the ELA was supportive—the EC would monitor the execution of the restructuring plan (EC 2010).

The BoS did not release any statements regarding the ELA it granted CCM in February 2009. While CCM issued a press release at the time announcing its BoS ELA in March 2009, it did not issue a press release in February about the earlier provision of ELA (see Figure 1, Timeline).

The decisions pertaining to the intervention by the BoS (except the first ELA) were promptly communicated to the public through press releases and press conferences (BoS 2009). The governor of the BoS testified before the Parliamentary Economy and Finance Commission on April 2, 2009, to explain the actions authorities had to take to rescue CCM (Fernández Ordóñez 2009). More information on the intervention was disclosed in the annual reports of the BoS and CCM, and in the EC’s State Aid report. However, the EC redacted information such as fees and other terms and conditions of the ad hoc emergency liquidity in its State Aid report (BoS 2010; EC 2010).

In March 2009, the BoS said in a statement that although CCM was a solvent entity, many of its regulatory and financial aspects warranted a solution that could “guarantee its future” (El Mundo 2009). The BoS also said that this intervention was necessary since the FGD could not come up with a solution, and a lack of action would have resulted in further deterioration of CCM’s financial position and therefore a resolution costlier to the taxpayer (CCM 2009; El Mundo 2009). In a press release about CCM, the BoS said that CCM represented only 1% of the assets in the Spanish banking system and that the broader Spanish financial system remained sound (BoS 2009).

Upon the implementation of the state guarantee, then–Minister of Economy Pedro Solbes reassured the public that CCM was solvent and that it did not have any financial irregularity; he said that CCM would continue to operate normally. He also said that CCM was in a unique situation and that no other financial entity was facing similar circumstances (Maíllo 2009).

The outgoing president of CCM (whom the BoS replaced in its intervention) said that the bank was in the “best hands” and that the intervention by the BoS was well-timed and exhibited professionalism (Maíllo 2009).

The BoS provided the ELA worth EUR 900 million in February 2009. After CCM had fully repaid the February ELA, the BoS provided a second ELA line on March 31, 2009, for up to EUR 9 billion, of which the Spanish government guaranteed up to EUR 3 billion. The BoS had an ex ante expectation that CCM would draw on the EUR 9 billion March ELA facility for only EUR 3 billion (the size of the state guarantee) but said that the anticipated EUR 6 billion slack would provide greater operational flexibility to respond to any issues arising with payments management (Fernández Ordóñez 2009). However, CCM asked the BoS to make only EUR 1.5 billion available, according to its 2009 annual report (CCM 2010; EC 2010).

The ELA was fully funded by the BoS through balance sheet expansion, and the restructuring plan would later provide that the BoS would be fully reimbursed once CCM’s assets were transferred to Banco Liberta, a subsidiary of CajAstur.

CCM was borrowing EUR 1.2 billion under the ELA at the end of 2009 and still had that amount outstanding at the time of its expiration at the end of June 2010, when the restructuring was approved (CCM 2010; EC 2010).

The annual interest rate charged for the ELA effected in March 2009 equaled the ECB marginal lending facility rate^FNIn the context of the Eurosystem’s interest rate corridor framework, the marginal lending facility is a standing facility providing overnight liquidity through Eurosystem national central banks; its lending rate is the ceiling for the overnight interbank market (ECB n.d.). of 175 bps plus 100 bps for a total of 275 bps (EC 2010; Statista 2024). 

According to the EC, to compensate for its guarantee, the government levied a fee on the BoS, less than 50 bps on the amount of the credit facility used (the State Aid document redacted the exact figure) (EC 2010).

The February 2009 ELA (worth EUR 900 million) granted by the BoS was paid off in March 2009 and replaced by a newer ELA, and thus in practice had a duration of one to two months (EC 2010). (Our research did not uncover the permitted duration according to the loan agreement.)

The ELA for up to EUR 9 billion that was extended by the BoS on March 31, 2009, did not have a predetermined end date outlined. CCM’s restructuring plan (formulated months after the issuance of the ELA, in September 2009) said it intended to fully pay back the loan once CCM’s assets were transferred to Banco Liberta (a subsidiary of CajAstur that eventually absorbed CCM’s banking business through an institutional protection system) (EC 2010). The duration of the ELA and state guarantee was ultimately about 15 months, as they lasted until the restructuring plan was approved on June 30, 2010. The ELA operated for longer than expected owing to the worsening liquidity situation at CCM (IMF 2012).

The BoS’s February 2009 EUR 900 million ELA was protected by EUR 2 billion of collateral, comprised of fixed and variable income instruments and additional assets from CCM’s credit portfolio (CCM 2010). The BoS could seize pledged collateral outside normal bankruptcy proceedings, as is standard in central bank lending arrangements (IMF 2012).

The ELA of March 2009 was guaranteed by the government of Spain (up to EUR 3 billion) upon the request of the BoS. Ultimately, the guarantee covered EUR 1.2 billion (EC 2010; IMF 2012). However, if the state guarantee had been called upon, the FGD would have refunded that amount to the state, in effect guaranteeing the state guarantee (Santos 2017).

Our research did not uncover any effects of the ELA to CCM on Eurosystem monetary policy.

On March 28, 2009, as part of the package of its intervention measures, the BoS replaced the managing board of CCM with three interim directors as a precautionary measure. It also put CCM into administration in this process. The new directors corroborated BoS’s conclusion that CCM would not be able to overcome its financial difficulties on its own (BoS 2010; EC 2010).