Draft reforms to legislation covering Spain’s savings banks, which the government is in the process of finalizing, will not impose a cap on the salaries of the administrative boards.

However, according to the text of the planned law, the savings banks — known as cajas – will be obliged to send an annual corporate governance report to the markets watchdog, the CNMV, within which they must specify the amounts paid to their boards of directors, including expenses and pension plan contributions.

If the bank in question has received bailout funds, directors’ salaries will be subject to previous legislation, which set limits of 600,000 euros a year.

Spain’s savings banks suffered greatly as the housing bubble burst, given both their huge exposure to the real estate market and, in many cases, their chronic mismanagement. Bankia, NCG Banco, Catalunya Banc and Banco de Valencia have all been nationalized as a result.

The new legislation will also require that the majority of a bank’s board members have sufficient financial qualifications for the role

In order to prevent a repeat of these episodes, the new legislation will also require that the majority of a bank’s board members have sufficient financial qualifications for the role, something that was not the case in the past, and contributed to the failure of several savings banks.

The legislation includes Brussels’ insistence that cajas that have controlling stakes in commercial banking arms through foundations set up a so-called Reserve Fund, which can be drawn on to ensure sufficient capital can be injected into those banks if they run into difficulties. This measure was a condition imposed by the European Commission in exchange for the bailout fund granted to Spain to help recapitalize its banks last year.

The Bank of Spain — which will hand over some of its powers to the Economy Ministry with regard to banks that operate in more than one of Spain’s autonomous regions — will be responsible for setting the amount of this reserve fund.

According to the draft law, the government will also force these banks — which, apart from Ontinyent and Caixa de Pollença, must be converted into foundations — to draw up contingency and risk-diversification plans to guarantee “healthy and prudent management,” in an effort to avoid practices seen in the past, such as the concentration of loans in the real estate sector. The legislation will also stop foundations from increasing their controlling stakes any higher than they at the moment the law comes in to force.

The text of the draft law will also establish the incompatibility of occupying the role of the head of a foundation and being on the administrative board of a bank at the same time, but it will allow directors to sit on the boards of other companies. In the case of directors who have been implicated in cases of wrongdoing by the courts, the Bank of Spain will decide whether or not they can remain on the board of the caja. In the case of the board of a foundation, however, it will be the regions which have the last word regarding directors who are in trouble with the law.

With these reforms, the government is taking the next step in terms of complying with the conditions set down by Brussels in exchange for the 40-billion-euro bailout fund that will be used to recapitalize Spain’s banks. But given that the legislation is yet to begin its passage through Congress, there is still some time to go before it will come in to force. Banks are expected to be complying with the reforms by the end of 2014.