Banking Law and Public Value Theory in Spain

1. Introduction

Public Value Theory is not a separate branch of Spanish banking law and Spain does not have a statute called a “Public Value Banking Law.” It is better understood as an analytical framework for examining whether public institutions and regulated banks create benefits for society beyond private profit.

Applied to Spain's banking system, public value can include:

• financial stability;
• protection of depositors;
• access to essential banking services;
• consumer protection;
• responsible lending;
• efficient payment systems;
• protection of public finances;
• financing of productive economic activity;
• market integrity;
• financial inclusion; and
• management of environmental and other systemic financial risks.

Spanish banking law pursues many of these objectives through a combination of the Spanish Constitution, Spanish banking legislation and European Union banking law.

The key point is that banks remain predominantly commercial enterprises, but their systemic importance means that banking law imposes duties and restrictions designed to protect interests extending beyond shareholders.

2. Meaning of Public Value Theory

Public Value Theory is commonly associated with public-management scholarship, particularly the work of Mark H. Moore.

The theory asks whether institutions create outcomes valued by society rather than focusing solely on financial efficiency or organizational profit.

Applied to banking, three interests can be distinguished:

Private value: profitability, shareholder returns and commercial growth.

Customer value: reliable accounts, credit, savings products, payments and financial services.

Public value: financial stability, market confidence, consumer protection, inclusion and avoidance of excessive social costs from banking failures.

Spanish banking regulation attempts to reconcile all three.

3. Constitutional Foundations

Although the Spanish Constitution does not expressly use the expression “public value theory,” several provisions establish the constitutional environment within which banking and economic regulation operate.

Article 1

Spain is constituted as a social and democratic State subject to the rule of law.

This provides part of the constitutional background for regulation designed to reconcile economic freedom with broader social objectives.

Article 38

Article 38 recognizes freedom of enterprise within the framework of the market economy.

However, economic freedom operates within the requirements of the general economy and, where appropriate, planning.

Banking institutions therefore possess commercial freedom, but banking is not an unregulated activity.

Article 51

Article 51 requires public authorities to protect consumers and users.

This has obvious relevance to:

• mortgage borrowers;
• payment-service users;
• depositors;
• consumer-credit customers; and
• purchasers of financial products.

Article 128

Article 128 states that the country's wealth, regardless of ownership, is subordinated to the general interest.

This provision is particularly relevant conceptually to public-value analysis because it confirms that private economic activity exists within a constitutional system capable of recognizing wider public interests.

4. Banking as an Activity of Public Importance

Banks perform functions that are essential to the Spanish economy.

They:

• hold deposits;
• extend credit;
• finance businesses;
• provide mortgages;
• process payments;
• distribute financial products;
• participate in capital markets; and
• transmit monetary conditions.

Failure of a major institution can therefore affect people who have no contractual relationship with that bank.

This is the basis of the systemic-risk problem.

Public Value Theory helps explain why the law does not leave bank safety entirely to shareholders and market discipline.

5. Banco de España and Public Value

The Banco de España, governed principally at national level by Law 13/1994 on the Autonomy of the Banco de España, forms part of the European System of Central Banks and the Eurosystem.

Its functions contribute to public value through areas such as:

• monetary-system functions;
• banking supervision within the European framework;
• financial-stability analysis;
• payment-system responsibilities;
• statistics; and
• cooperation with European authorities.

Its objective is not commercial profit maximization.

Its institutional role concerns the functioning and stability of the monetary and financial system.

6. ECB and the Single Supervisory Mechanism

Since the creation of the European Banking Union, responsibility for Spanish banking supervision is shared within the Single Supervisory Mechanism (SSM).

The ECB directly supervises significant banking groups, while Banco de España exercises supervisory functions within the allocation of responsibilities established under EU law.

Council Regulation (EU) No 1024/2013 provides the core SSM framework.

Public value is created through supervision because regulators attempt to identify dangerous banking practices before they produce systemic losses.

Supervision covers matters including:

capital → liquidity → governance → credit risk → internal controls → concentration risk → resilience.

7. Law 10/2014 and Prudential Public Value

Spain's Law 10/2014 on the regulation, supervision and solvency of credit institutions is a central domestic component of banking regulation.

Its regulatory structure addresses matters such as:

• authorization;
• governance;
• qualifying holdings;
• supervision;
• solvency; and
• sanctions.

The public-value logic is preventive.

If banks were regulated only after becoming insolvent, many customers and potentially the wider economy could already have suffered substantial harm.

Prudential regulation therefore seeks to prevent or contain that harm in advance.

8. Consumer Protection as Public Value

Consumer protection provides one of the clearest applications of public value to Spanish banking law.

Financial contracts can be technically complex. Consumers may have significantly less information and bargaining power than banks.

Spanish law, together with EU consumer law, therefore subjects banking contracts to requirements concerning:

• transparency;
• unfair terms;
• pre-contractual information;
• mortgage lending;
• payment services; and
• consumer remedies.

This does not mean that every unfavorable contractual term is unlawful.

The legal question is whether the particular term satisfies the applicable statutory and EU standards.

9. Mortgage Lending and Social Value

Mortgage lending has been especially important in Spain.

Following the financial crisis, litigation exposed tensions between:

efficient enforcement of security

and

effective consumer protection.

A banking system creates public value when creditors can enforce legitimate obligations while borrowers retain effective legal protection against unlawful or unfair contractual practices.

Several landmark CJEU cases arising from Spain reshaped this balance.

10. Case Law 1 — Aziz v Caixa d'Estalvis de Catalunya

Case C-415/11, CJEU, 14 March 2013

This is one of the most important Spanish banking-consumer cases.

Mohamed Aziz challenged mortgage-related enforcement after arguing that his loan contained unfair terms.

The CJEU considered Spanish procedures in light of Directive 93/13/EEC on unfair terms in consumer contracts.

The Court found that the procedural system at issue did not provide sufficiently effective protection where the mortgage-enforcement process could proceed without an adequate mechanism capable of preventing the consequences of an unfair term.

Public-value significance

Aziz demonstrates that efficient debt enforcement is not the only legal value involved in banking.

Effective judicial protection of consumers also forms part of the legal order.

The case can therefore be understood as balancing:

creditor certainty + efficient lending + consumer protection + effective judicial remedies.

11. Case Law 2 — Banco Español de Crédito v Calderón Camino

Case C-618/10, CJEU, 14 June 2012

The dispute involved consumer credit and an allegedly unfair default-interest provision.

The CJEU emphasized the protective purpose of Directive 93/13.

The Court also addressed the role of national judges when confronted with unfair contractual terms.

Public-value significance

The case demonstrates that contractual freedom is constrained where mandatory consumer law applies.

A financial system based solely on contractual formalism could permit serious bargaining inequalities.

Consumer-law intervention therefore seeks to preserve confidence and fairness within financial markets.

12. Case Law 3 — Gutiérrez Naranjo

Joined Cases C-154/15, C-307/15 and C-308/15, CJEU, 21 December 2016

These cases concerned Spanish mortgage floor clauses (cláusulas suelo).

Such clauses prevented mortgage interest rates from falling below a specified minimum even when the reference rate declined further.

Spanish jurisprudence had limited the temporal restitutionary consequences associated with findings of unfairness.

The CJEU held that EU law did not permit such a general temporal limitation to deprive consumers of the restitution resulting from an unfair term in the circumstances addressed by the judgment.

Public-value significance

The decision demonstrates that concerns about financial consequences for banks do not automatically displace rights provided by EU consumer law.

Public value therefore includes both:

banking stability and effective consumer rights.

13. Case Law 4 — Abanca Corporación Bancaria and Bankia

Joined Cases C-70/17 and C-179/17, CJEU, 26 March 2019

These cases concerned early-maturity or acceleration clauses in mortgage contracts.

Such clauses could permit a lender to demand repayment of the entire loan following specified defaults.

The CJEU examined how Spanish courts should deal with an unfair contractual term when removing it could affect continuation of the mortgage contract.

Public-value significance

The judgment illustrates the need to reconcile:

• contractual certainty;
• creditor rights;
• consumer protection; and
• effective judicial remedies.

Public value does not require eliminating enforcement rights. It requires that enforcement operate within lawful safeguards.

14. Case Law 5 — Gómez del Moral Guasch v Bankia

Case C-125/18, CJEU, 3 March 2020

This case concerned the IRPH mortgage interest-rate index.

The CJEU considered whether a mortgage term referring to an officially established index could nevertheless be examined under EU transparency requirements.

The Court confirmed that relevant consumer-law transparency controls could apply within the framework described in the judgment.

Public-value significance

Official regulation of a financial benchmark does not necessarily eliminate the bank's obligation to satisfy applicable transparency standards concerning the contractual term.

Transparency itself creates public value by enabling consumers to make more informed financial decisions.

15. Case Law 6 — Bankia IPO Litigation

Spanish Supreme Court, judgments of 3 February 2016

The litigation arose from Bankia's 2011 public offering.

Retail investors argued that information associated with the offering did not accurately represent the institution's financial position.

The Spanish Supreme Court upheld remedies in the proceedings before it based on serious discrepancies between the financial information used for the offering and Bankia's subsequently reformulated financial position.

Public-value significance

Capital markets depend upon reliable information.

Banks therefore create public value not simply by attracting investment but by doing so within an environment of accurate disclosure and investor confidence.

16. Case Law 7 — Banco Santander v Demba and Bonet

Joined Cases C-96/16 and C-94/17, CJEU, 7 August 2018

These proceedings concerned default-interest terms and Spanish judicial approaches to determining unfairness.

The CJEU considered the relevant national jurisprudence against EU consumer-law requirements.

Public-value significance

The case illustrates the interaction among:

national courts + EU consumer law + bank contractual freedom.

The banking system therefore operates within a multilevel legal framework rather than purely national commercial law.

17. Bank Resolution and Public Value

The financial crisis demonstrated that allowing large banks simply to fail through ordinary insolvency could produce enormous social costs.

But unconditional taxpayer bailouts create another problem: moral hazard.

If shareholders and creditors expect the government always to rescue a bank, they may have weaker incentives to control risk.

Spain and the EU therefore developed a modern bank-resolution framework.

An important Spanish statute is Law 11/2015 on the recovery and resolution of credit institutions and investment firms, operating alongside EU resolution legislation.

Resolution seeks to maintain critical functions while allocating losses according to legally established rules.

18. Case Law 8 — Banco Popular Español / Aeris Invest v SRB

The 2017 resolution of Banco Popular Español became one of the most important tests of the EU Single Resolution Mechanism.

The ECB determined that Banco Popular was failing or likely to fail, after which the Single Resolution Board adopted a resolution scheme and Banco Santander acquired the institution.

Numerous proceedings subsequently challenged aspects of the resolution.

The litigation reached the EU General Court and subsequently the Court of Justice in proceedings concerning the SRB and related EU decisions.

Public-value significance

Banco Popular illustrates the central resolution problem:

How can authorities maintain financial stability without automatically transferring the losses of a failing private bank to taxpayers?

Modern resolution law attempts to protect critical banking functions while allocating losses under statutory resolution rules.

19. Deposit Guarantee as Public Value

Spain's Fondo de Garantía de Depósitos de Entidades de Crédito protects eligible deposits subject to applicable statutory conditions.

The harmonized EU protection level is generally €100,000 per depositor per institution, subject to detailed rules.

Deposit protection creates public value because it:

• protects eligible depositors;
• reduces incentives for destabilizing bank runs;
• supports confidence; and
• contributes to financial stability.

It also demonstrates that individual protection and systemic protection frequently reinforce each other.

20. ICO and Developmental Public Value

The Instituto de Crédito Oficial (ICO) demonstrates another dimension of public value.

ICO is a public-sector credit institution that supports financing connected with public economic objectives.

Its activities can facilitate funding for:

• SMEs;
• entrepreneurs;
• investment;
• internationalization;
• infrastructure;
• sustainability projects; and
• economic recovery.

Commercial banks frequently participate as intermediaries in ICO financing arrangements.

The structure can therefore be represented as:

Public objective → ICO → banking system → businesses and investment → economic activity.

21. Financial Inclusion

Public value also concerns access to banking services.

Modern participation in economic life increasingly requires access to:

• bank accounts;
• electronic payments;
• transfers;
• cards;
• online banking; and
• other basic financial services.

EU and Spanish rules concerning basic payment accounts support financial inclusion for eligible consumers.

This demonstrates that banking law increasingly treats certain payment functions as socially significant infrastructure rather than merely optional commercial products.

22. Digital Banking and Public Value

Spanish banking has become increasingly digital.

Digitalization creates substantial benefits:

lower transaction costs + faster payments + easier account access + greater competition.

But it also creates risks:

cybercrime + operational disruption + digital exclusion + fraud + technology dependence.

The EU Digital Operational Resilience Act (DORA) has consequently become an important component of the regulatory environment for financial entities.

Public value in digital banking therefore requires both innovation and resilience.

23. Sustainable Finance

Environmental and climate-related financial risks have also entered European banking supervision and disclosure frameworks.

The legal point should be stated carefully: banking law does not simply require banks to finance every environmentally desirable activity.

Instead, EU rules increasingly require financial institutions to consider and disclose specified sustainability risks and, depending upon the applicable framework, integrate environmental, social and governance considerations into risk-management and reporting processes.

From a public-value perspective, this reflects recognition that long-term environmental risks can become financial risks.

24. Competition as Public Value

Public value does not necessarily mean expanding State control over banks.

Competition can itself create public benefits through:

• lower costs;
• innovation;
• improved services;
• customer choice; and
• market discipline.

Spain's banking system is therefore also subject to Spanish and EU competition law.

The challenge is to preserve both:

competition and financial stability.

A banking system that is stable but completely insulated from competition may harm consumers. Conversely, uncontrolled competitive risk-taking may undermine stability.

25. Public Value and the Financial Crisis

Spain's post-2008 banking crisis demonstrates why public-value analysis is useful.

Before the crisis, rapid credit expansion and property lending generated substantial private economic activity.

When property markets deteriorated, however, weaknesses at certain financial institutions created much broader costs.

Spain consequently experienced:

bank restructuring → public intervention → European financial assistance → institutional reforms → stronger European supervision and resolution mechanisms.

The experience illustrates a basic distinction:

An activity can create short-term private profit while simultaneously generating long-term systemic costs.

Banking regulation attempts to internalize some of those external costs.

26. Public Value Versus Profit Maximization

Consider a hypothetical Spanish bank deciding between two strategies.

Strategy A

Rapidly expand high-risk property lending.

Potential outcome:

higher immediate profit → larger bonuses → stronger short-term shareholder return.

But it may also create:

concentration risk → future defaults → capital losses → financial instability.

Strategy B

Maintain diversified lending and stronger capital and liquidity buffers.

Short-term profitability might be lower, but institutional resilience may be greater.

Public Value Theory helps explain why regulators impose capital, liquidity and risk-management requirements even where individual banks might commercially prefer greater leverage.

27. Measuring Public Value in Banking

Public value cannot be measured solely through bank profits.

Possible indicators include:

No single indicator determines whether the banking system serves the public interest.

28. Institutional Structure

Public value in Spanish banking is produced through several institutions with different legal responsibilities:

Banco de España
National central bank and banking supervisor within the European system.

European Central Bank
Direct prudential supervisor of significant institutions under the SSM.

CNMV
Securities-market supervision and investor protection.

FROB
National resolution authority within the European resolution architecture.

Single Resolution Board
Central resolution authority for relevant Banking Union institutions.

ICO
Public-sector financing and economic-policy institution.

Deposit Guarantee Fund
Protection of eligible deposits under applicable rules.

Spanish courts
Enforcement of domestic legal rights.

CJEU
Authoritative interpretation of EU law.

This institutional plurality reflects the fact that “public value” in banking has several dimensions rather than one single objective.

29. Limits of Public Value Theory

Public Value Theory should not be mistaken for a legal rule that courts can automatically apply to invalidate any banking decision considered socially undesirable.

Spanish courts require an actual legal basis, such as:

• constitutional provisions;
• legislation;
• EU regulations;
• EU directives as implemented and interpreted;
• contractual law;
• consumer law; or
• administrative law.

Therefore:

Public Value Theory explains why regulation exists; positive law determines what banks and authorities are legally required to do.

This distinction is essential in legal analysis.

30. Overall Case-Law Principles

The principal cases reveal several dimensions of public value:

Banco Español de Crédito
→ effective protection against unfair consumer terms.

Aziz
→ judicial remedies must effectively protect mortgage consumers.

Gutiérrez Naranjo
→ consumer rights cannot simply be displaced because enforcement has significant financial consequences.

Abanca/Bankia
→ mortgage enforcement must operate consistently with EU unfair-terms law.

Gómez del Moral Guasch
→ transparency remains important even for contractual terms involving officially established indices.

Bankia IPO litigation
→ reliable financial disclosure supports investor confidence.

Banco Popular litigation
→ resolution law balances financial stability, property rights, creditor treatment and avoidance of taxpayer-funded rescue.

Together these authorities demonstrate that Spanish banking law protects several values simultaneously rather than treating bank profitability as its sole objective.

Conclusion

Public Value Theory provides a useful framework for understanding Spanish banking law, but it is not itself an independent source of Spanish banking obligations. The enforceable rules come from Spanish constitutional and statutory law and from the EU legal order.

Spain's banking framework seeks to combine:

commercial freedom + financial stability + consumer protection + depositor confidence + market integrity + financial inclusion + operational resilience + protection of public finances.

The constitutional background includes Articles 38, 51 and 128 of the Spanish Constitution, while important banking legislation includes Law 10/2014, Law 13/1994, Law 11/2015, and extensive EU prudential, consumer and resolution legislation.

Cases such as Banco Español de Crédito*, Aziz, Gutiérrez Naranjo, Abanca/Bankia, *Gómez del Moral Guasch, the Bankia IPO cases, and the Banco Popular resolution litigation illustrate how courts have addressed the practical tensions between commercial banking interests and broader legally protected interests.

The central lesson is that Spanish banking law does not require banks to abandon profitability. Instead, it establishes boundaries within which private banking activity must operate so that private financial activity does not impose unacceptable costs on consumers, depositors, financial markets or society as a whole.