Banking Law and Liquidity Risk Regulation in Spain

Liquidity risk is the risk that a bank cannot pay depositors, creditors, or other obligations when payment is due. A bank may own valuable assets and still face a liquidity crisis if it cannot turn those assets into cash quickly enough. Spain regulates this risk through both EU banking rules and Spanish supervisory law.

The case law needs one qualification: there are few reported judgments about the routine calculation of a Spanish bank’s liquidity ratios. The six decisions below mainly concern the 2017 resolution of Banco Popular Español. They show what can happen when liquidity risk becomes an immediate threat to a bank, but they should not be mistaken for six separate rulings on how to calculate the ratios.

1. The regulatory framework

The EU Capital Requirements Regulation, commonly called the CRR, sets prudential liquidity requirements for banks. Its liquidity coverage requirement is developed in Commission Delegated Regulation (EU) 2015/61. Spanish banks must also operate within Spain’s Law 10/2014 on the organisation, supervision and solvency of credit institutions. Banco de España participates in supervision through the European Single Supervisory Mechanism; the ECB directly supervises significant banks.

Two ratios address different time horizons:

Meeting a ratio is only part of liquidity management. Supervisors also examine the reliability of deposits and wholesale funding, access to usable collateral, cash-flow forecasts, concentration of funding sources, stress tests, and contingency plans. A bank needs to know where cash will come from, when it will arrive, and whether it can actually use it during a crisis. Spain’s Law 10/2014 expressly provides for supervisory assessment of appropriate liquidity requirements.

2. What happens when liquidity deteriorates?

A falling LCR or rapid withdrawal of deposits calls for urgent management and supervisory attention. The bank may need to use its liquidity buffer, obtain funding, sell assets, raise capital, or carry out a credible recovery plan. Use of a liquidity buffer during stress is contemplated by the regulatory framework; the central issue is whether the bank can continue meeting obligations and restore a sound position. If it cannot pay debts as they fall due, the question can move from ordinary supervision to bank resolution under the EU Single Resolution Mechanism Regulation.

Banco Popular illustrates this distinction. Its liquidity position deteriorated rapidly, and on 6 June 2017 the ECB assessed it as failing or likely to fail. The resulting resolution took place on 7 June 2017. The legal question was no longer simply whether a reported ratio had been met: it was whether the bank could meet its obligations in the near future and whether a workable alternative could prevent failure.

3. Six relevant judgments

1. Fundación Tatiana Pérez de Guzmán el Bueno and SFL v SRB, T-481/17, General Court, 1 June 2022. This was a challenge arising from Banco Popular’s resolution. It is relevant to the legal review of the resolution decision and the rights of affected investors. It does not establish a separate Spanish LCR calculation rule. Its procedural treatment must also be read in light of later appeal proceedings.

2. Del Valle Ruiz and Others v Commission and SRB, T-510/17, General Court, 1 June 2022. The applicants challenged the resolution and argued, among other things, that alternative measures could have avoided it. The judgment examined whether a private sale or emergency liquidity assistance could realistically have prevented Banco Popular’s failure within the time available. The lesson for liquidity planning is that a possible source of money is not an effective contingency measure unless it can be obtained in time.

3. Eleveté Invest Group and Others v Commission and SRB, T-523/17, General Court, 1 June 2022. The court addressed a challenge to the same resolution. It noted that the applicants accepted that Banco Popular had liquidity problems and did not dispute that it was likely soon to be unable to pay debts or other liabilities as they fell due. This illustrates the legal importance of actual payment capacity, beyond the bank’s asset values on paper.

4. Algebris (UK) and Anchorage Capital Group v Commission and SRB, T-570/17, General Court, 1 June 2022. Investors contested the Banco Popular resolution, raising issues including the reasons given for the decision, valuation, and investor rights. The case shows that an urgent response to a liquidity crisis remains subject to legal requirements for a reasoned resolution decision and judicial review.

5. Aeris Invest v Commission and SRB, T-628/17, General Court, 1 June 2022. This challenge also concerned Banco Popular’s resolution. It addressed, among other matters, whether the legal conditions for resolution were met and the treatment of shareholder rights. Its practical relevance is the distinction between a bank’s attempt to manage a crisis and the resolution authority’s assessment that failure cannot be prevented within a reasonable time. The judgment was subsequently considered on appeal.

6. Aeris Invest v Commission and SRB, C-535/22 P, Court of Justice, 4 October 2024. On appeal, the Court of Justice examined the conditions for Banco Popular’s resolution. It discussed the evidence of the bank’s worsening liquidity and the argument that further emergency liquidity assistance could have avoided failure. The judgment underscores that an alternative must be realistic and timely; merely identifying a theoretical funding option does not establish that resolution was unnecessary.

These are six judicial decisions, but they are closely connected proceedings about one bank failure, including a judgment and its appeal. That connection matters: counting them as six independent Spanish liquidity crises would give a misleading picture of the case law.

4. Practical effect for a Spanish bank

A Spanish bank should treat liquidity regulation as an ongoing ability to make payments, supported by evidence that supervisors can test. In practical terms, its governing body should ensure that the bank:

• maintains the required LCR and NSFR and reports them accurately;
• monitors likely cash inflows and outflows under normal and stressed conditions;
• holds liquid assets it can actually access and use;
• tests deposit withdrawals and the loss of major funding sources; and
• keeps a contingency funding plan that can work at the speed of a real crisis.

Banco Popular supplies the clearest judicial warning. Liquidity can deteriorate faster than a proposed sale, funding transaction, or emergency measure can be completed. When that happens, compliance figures and valuable assets do not by themselves prove that the bank can pay obligations falling due. Spain’s liquidity regime therefore combines preventive ratios and supervision with recovery and resolution procedures for a crisis that preventive measures cannot contain.