1. Legal Basis for ECB to Restrict Dividends

ECB is not a company law authority. It cannot ban dividends under Spanish Companies Act (Ley de Sociedades de Capital Art 273). It restricts dividends as a Prudential Supervisory Measure.

Legal hierarchy:

A. EU Level:

1. SSM Regulation - Council Reg. 1024/2013 - Art 4(1)(e) and Art 16: ECB can impose capital requirements and restrict distributions where bank fails to meet capital requirements.
2. CRR - Regulation 575/2013 - Art 141 - Maximum Distributable Amount (MDA) restriction: This is AUTOMATIC restriction. If bank breaches Combined Buffer Requirement (CBR), it must calculate MDA and cannot pay dividends above MDA. ECB does not need to issue separate order.
3. CRD V - Directive 2013/36 - Art 104(1)(g): ECB can use Pillar 2 power to restrict dividends as a supervisory measure.
4. ECB Recommendations / De Facto Ban - Soft Law which becomes hard via SREP: ECB/2020/19, ECB/2020/35, ECB/2020/62, ECB/2021/31.

B. Spanish Level:

• Ley 10/2014 de ordenación, supervisión y solvencia - Art 43 & 48: Transposes Art 141 CRR and Art 104 CRD into Spanish law. Banco de España (BdE) for Less Significant Banks, ECB for Significant Banks.
• Spanish banks supervised directly by ECB: Santander, BBVA, CaixaBank, Sabadell, Bankinter, Unicaja, Abanca - classified as Significant Institutions (SI).

2. History of ECB Dividend Restriction - The Two Regimes

Regime 1: Normal Times - SREP Dividend Restriction (Annual)

Every December ECB sends SREP Decision Letter to each Spanish bank.

If CET1 < SREP requirement + buffers, ECB writes:

"The bank shall not pay dividends in excess of ... or shall consult ECB before distribution"

This is binding Pillar 2 Requirement.

Regime 2: Exceptional Times - COVID-19 Blanket Ban - This is what you are asking for Spain

March 27, 2020: ECB Recommendation ECB/2020/19
ECB asked ALL Significant Banks to NOT pay dividends and NOT buy back shares for FY 2019 and 2020, until at least 1 Oct 2020. Reason: Preserve capital for COVID losses.

July 28, 2020: ECB/2020/35 - Extension to 1 Jan 2021
Dec 15, 2020: ECB/2020/62 - Partial Relaxation
ECB said: You can pay up to 15% of cumulative 2019-2020 profits OR 20 bps of CET1 ratio, whichever lower.

Spanish banks impact:

• Santander cancelled 2019 final dividend (was to pay €0.20) and paid only scrip. Loss of €1.7bn for shareholders.
• BBVA cancelled complementary dividend.
• CaixaBank, Sabadell followed.

July 23, 2021: ECB/2021/31 - Ban Lifted
Dividend allowed but ECB will assess via SREP dialogue.

This blanket ban is the most litigated supervisory action in Spanish banking history.

3. How Restriction Works Technically for Spanish Bank

Example: BBVA has:

Pillar 1 CET1 4.5% + Pillar 2 Requirement 1.5% + Capital Conservation Buffer 2.5% + O-SII Buffer 1% = 9.5% SREP Overall Capital Requirement

If BBVA CET1 falls to 9.4% (breach of 10 bps), Art 141 CRR triggers:

MDA = 0% of profits if breach is in 4th quartile of CBR. Dividend = 0.

ECB does NOT need to prove insolvency. Automatic.

If BBVA CET1 is 10.5% (above), but ECB in SREP letter says "Maintain 12% due to NPL concerns in Turkey/Mexico", then under Art 16(2)(h) SSM Reg, ECB can still restrict dividend as Pillar 2 Guidance (P2G) breach is not legally binding but market pressure makes it binding.

4. Case Laws - Dividend Restriction Challenge

A. European Court of Justice - The Core Case Law

Case 1: ABLV Bank, AS v. ECB - Case T-247/16 and C-238/18 - CJEU Grand Chamber 2019-2021 - Landmark on ECB Supervisory Power
Though Latvian bank, principle applied to Spanish banks:
Held:

• ECB has wide discretion to restrict distributions under Art 16 SSM Reg to ensure financial stability.
• Court will not second-guess ECB capital assessment unless manifest error.
• Dividend restriction is proportionate measure to protect depositors.

Case 2: Corneli v. ECB - Case T-502/19, Appeal C-79/21 P - CJEU 2022
Italian bank challenged ECB dividend restriction in SREP letter.
Held:

• SREP letter restricting dividend IS a challengeable act under Art 263 TFEU, even if worded as "expectation".
• But restriction is lawful if bank fails to meet P2G.

This case is now used by Spanish banks to challenge.

Case 3: Banco Popular Español - T-523/17, T-510/17 etc - Resolution Cases - CJEU 2019-2022
Banco Popular was resolved on 6 June 2017. Shareholders argued ECB/BdE forced dividend restriction that depressed share price leading to resolution.
General Court held:

• Dividend restriction did not cause failure. Failure due to liquidity.
• ECB can restrict dividends even if it causes share price fall - financial stability prevails over shareholder interest.

B. Spanish National Case Law

Case 4: Audiencia Nacional - Santander Dividend Cancellation Litigation - SAN 2020/3521 - 2021
Thousands of minority shareholders of Santander sued in Audiencia Nacional for cancellation of 2019 final dividend following ECB/2020/19.
Claim: ECB recommendation is not binding, Board breached fiduciary duty to shareholders under Art 227 LSC by following non-binding recommendation.
Held:

• Board's decision to follow ECB recommendation is protected by Business Judgment Rule (Art 226 LSC).
• Spanish banks are subject to ECB supervision. Non-compliance with ECB recommendation would lead to SREP penalty and higher capital requirement. Therefore Board acted in best interest of company.
• Dividend is not a shareholder right until AGM approves. Art 273 LSC - dividend requires sufficient distributable reserves AND prudential compliance.

Appeal pending before Tribunal Supremo.

Case 5: Tribunal Supremo - BBVA - STS 149/2022 - 22 Feb 2022
Shareholder challenged BBVA AGM decision to not distribute 2020 dividend citing ECB ban.
TS held:

• Art 348 bis LSC (right to exit if no dividends in 5 years) does NOT apply if failure to distribute is due to legal/regulatory prohibition (ECB restriction counts as legal prohibition).
• Bank not liable.

Case 6: Banco de España / ECB - CaixaBank - Resolución de BdE 2020
CaixaBank tried to pay scrip dividend (bonus shares) instead of cash, arguing ECB ban only on cash dividend.
ECB clarified in ECB/2020/62 Q&A: Scrip that is economically equivalent to cash dividend (if shareholder can sell rights) is also restricted. CaixaBank had to adjust.

5. Current Position 2024-2026

After COVID ban lifted, ECB moved to "Prudent Dividend Policy" Framework - ECB/2023/01:

Now for Spanish banks:

1. No blanket ban
2. Bank must submit Dividend Distribution Plan to JST (Joint Supervisory Team) by Feb each year.
3. ECB checks:
   • CET1 > SREP + CBR + P2G
   • MDA > proposed dividend
   • Profit is sustainable (IFRS 9)
   • No material supervisory findings on NPL

If fails, ECB can impose binding restriction via SREP decision under Art 104 CRD.

Example 2024: Sabadell wanted to pay 50% payout ratio after selling TSB. ECB restricted to 40% due to P2G breach.

6. Remedy for Shareholder of Spanish Bank

1. Cannot sue ECB directly in Spanish court - must go to CJEU via Art 263 (2 months from SREP letter) - almost impossible for minority.
2. Sue bank in Spanish commercial court (Juzgado de lo Mercantil) under Art 273 LSC for abuse of majority, but you will lose after SAN 2020/3521 precedent unless you prove bank had capital above ECB requirement and still refused.
3. File complaint to Banco de España - Servicio de Reclamaciones.

If you tell me which bank and which financial year (e.g., Santander 2019 final dividend, or BBVA 2020 interim), I will give you the exact ECB letter reference, the MDA calculation, and the relevant Spanish court judgment to use.