Broader powers for central bank in the works

In an effort to prevent another national financial catastrophe, the government is to pass legislation giving the Bank of Spain and the National Securities Commission (CNMV) broader powers to prevent bank failures and fight illegal market speculation, sources said Thursday.

The new banking law, which is already in the works, will give central bank governor Luis María Linde an arsenal of new tools to expand his supervisory powers and the authority to impose fines of up to five million euros against bankers and prevent them from receiving generous severance packages when they leave their jobs. Under the legislation, the governor will also be able to demand that any compensation he deems unfair be returned to the banks.

As for the CNMV, the market watchdog will be able to crack down on illegal speculation through the short selling of stocks and credit-default swaps (CDS). The law will incorporate measures already introduced by other European nations, such as Germany, which in May 2010 prohibited some short-selling transactions and CDS deals involving euro-zone government bonds in an effort to curb the volatility of the debt markets.

According to the bill being drafted — a copy of which was obtained by EL PAÍS — the Bank of Spain will also have new powers to intervene directly in financial institutions that do not follow solvency regulations.

The 158 pages of the proposed reform were analyzed by the Cabinet last Friday. The most striking changes to the existing legislation are the increases of the amounts of fines that can be imposed on bankers who commit infractions. Fines will be hiked from 500,000 euros to five million euros for felonies, and up to 500,000 euros for lesser infractions.