Spain to require some banks to raise capital ratios to 10%

Spain will require some of the country’s unlisted savings banks to raise their core capital ratio to 10.0 percent, the finance minister said Wednesday, in a further move to boost confidence in the nation’s financial system.

The requirement will apply to unlisted banks or those who have private investment of less than 20 percent or who depend on the wholesale markets for more than 20 percent of their funding needs, Elena Salgado said.

The new requirements were contained in letters from the minister to the head of the Spanish Confederation of Savings Banks (CECA), Isidre Faine, and of the Spanish Bank Association (AEB), Miguel Martin, and released to media late on Wednesday.

She said the move was necessary to “maintain the full confidence of their investors in gaining access to wholesale funding even in adverse circumstances.

Salgado announced on January 24 that Spain will require all its banks to increase their core capital ratio to 8.0 percent, more than the 7.0 percent required by 2018 under new, international “Basel III” rules agreed in September, to give them a bigger cushion against economic difficulties.

But she said at the time that the ratio may be higher some lenders.

Spanish banks have been hobbled by loans to construction and real estate developers since the collapse of a property bubble and they are at the heart of market fears that the country could need a bailout from the European Union and the International Monetary Fund like the ones granted Ireland and Greece last year.

While major Spanish banks like Santander or BBVA can comfortably cope with their bad real estate loans, there are fears that some of the regional savings banks may not be able to do so.

By requiring the banks to keep a high level of capital immediately available, the government is hoping that they will be able to cope with any new emergency and so not require hugely costly government help — the achilles heel which sank the Irish banking system and then the public finances.

All eight major Spanish banks passed European Union bank stress tests conducted in July on their ability to weather a fresh crisis but five out of 19 regional lenders examined failed.