Madrid — Spain said Monday its banks will need €20-billion ($27-billion U.S.) in new capital to meet new reserve requirements aimed at strengthening their finances and quelling fears the country might be Europe's next to need a bailout.
Finance Minister Elena Salgado said a government fund that has been lending billions for mergers among troubled cajas, or savings banks, might eventually buy stakes in the entities that cannot meet the new criteria by raising capital on the open market.
She says that for that to happen banks will have to be listed on the stock market and become full-blown banks. The savings banks are not now listed.
Worries about Spain's banking system have been an aggravating factor in the government debt crisis plaguing the euro zone. Cajas have been particularly hard hit by exposure to a collapsed real estate sector in Spain.
Ms. Salgado said it will not be known until in the fall of this year which savings banks the government fund, called the FROB, might buy into.
At a hastily called news conference, Ms. Salgado said the overriding goal of the restructuring of the Spanish banking sector is to “dissipate any doubt about the solvency of lending entities, about their capacity to resist under difficult circumstances, in adverse scenarios, as unlikely as these scenarios might be.”
The new core capital ratio will be 8 per cent compared to the current 6 per cent and might be even higher for savings banks, and this will be decided over the next few weeks, she said.
Ms. Salgado said the €20-billion needed in new capital for the banking system will not be financed entirely by the government and it will be a few months before it is known how much public money is needed.
She said the new core capital requirement will take effect in December of this year. Spain is essentially moving up the new bank reserve rules called Basel III that were decided last year by major banks meeting in Switzerland.
Spain's share of the Europe sovereign debt crisis has died down a bit due to successful bond auctions recently, and thanks to EU statements that the bloc is looking at ways to beef up its mechanisms to handle crises.
But Spain's banks are a risk because if they need money, that could hit already hard-pressed government finances, sapped by spending to compensate for a jobless rate that is at nearly 20 per cent and on stimulus measures. The burden of saving troubled banks helped push Ireland to the verge of bankruptcy and forced it to accept an EU and IMF rescue package late last year.