Economy of Spain - Spanish Banking System

Spanish Banking System

The Spanish banking system has been credited as one of the most solid of all western banking systems in coping with the ongoing worldwide liquidity crisis, thanks to the country's conservative banking rules and practices. Banks are required to have high capital provisions and to demand various guarantees and securities from intending borrowers. This has allowed the banks, particularly the geographically and industrially diversified large banks like BBVA and Santander, to weather the real estate deflation better than expected. Indeed, these banks have been able to capitalise on their strong position to buy up distressed banking assets elsewhere in Europe and in the United States.

Nevertheless, with the unprecedented crisis of the country's housing crisis, smaller local savings banks ("caja") that representing a little portion of banking system, are known to have delayed the registering of bad loans, especially those backed by houses and land, to avoid declaring losses. This has occurred despite the fact that these credits are backed by the borrower's present and future assets.

CCM (Caja Castilla la Mancha), is still the only local savings bank to have suffered a run by depositors. The central bank Banco de España (equivalent of the US Federal Reserve) forcibly took over CCM to prevent its financial collapse. PricewaterhouseCoopers estimated an imbalance between CCM's assets and debts of €3,500 million, not counting the industrial corporation. There were errors leading to the present situation. On May 22, 2010, the Banco de España took over another "caja", CajaSur, as part of a national program to put the country's smaller banks on a firm financial basis.

In early June 2012, Spain requested European funding of 100 billion euros "to recapitalize Spanish banks that need it", is not a "rescue" because a real rescue, would reach ten or twelve times that amount. In return for aid, there shall be no tax or macroeconomic conditions. The interest from the loan would pay the banks themselves. This plan will be overseen by the IMF, which would not place any money. According to the statement of European Ministers of Finance, the Eurogroup will closely monitor "the correction of economic imbalances." The news of funding led to a rise in risk premium Spanish to very high levels and a strong fall of the stock exchange in Madrid in June and July 2012. It was definitely an overreaction of the markets, according to what rightly stated by the Spanish economy minister. It almost certainly will come some very strong reactions from the markets, which only will confirm that if in Spain eventually rise the crisis, the whole world will suffer the same fate, and nobody wants that situation, so that in the medium term despite all these financial reactions must moderate and the economic performance of Spain and Europe should return to normal and growth.