ECB's EUR 44bn loan to banks sparks economy fears

13th February 2008, Comments 1 comment

Government says sector strong despite above-average borrowing in December

13 February 2008

BRUSSELS/MADRID - Economy Minister Pedro Solbes argued on Tuesday that the Spanish financial system remains strong, downplaying suggestions of weakness in the sector after recent figures showed that Spanish banks rushed to the European Central Bank for funding in December.

"One of our greatest strengths is our financial system," Solbes declared at a meeting of EU economy and finance ministers in Brussels. He noted that the nine percent, or EUR 44 billion, of funds taken by Spanish banks in ECB auctions in December compares to the Spanish banking sector's 13 percent share of euro-zone banking deposits, 10 percent share of banking sector assets and Spain's 10 percent contribution to GDP.

However, at EUR 44 billion, the amount of funds taken by Spanish banks more than doubles the monthly average of about EUR 20 billion for the previous year. That has led some analysts to speculate that Spanish banks' liquidity problems may be worse than they are letting on following the strangling of wholesale credit markets due to the US subprime mortgage crisis.

Spanish banks have repeatedly trumpeted their financial health. The country's largest, Santander, says it has EUR 25 billion in liquid assets, BBVA claims EUR 20 billion and Banco Popular says it is sitting on EUR 14 billion.

They have been joined in their optimism by the government, which faces a general election on 9 March. "Foreign banks are looking at the solvency of Spanish banks with envy," Solbes chimed.

He also said the government is working hard to fight high inflation, which has taken a toll on consumer spending in recent months.

[Copyright EL PAÍS / Andreu Missé / I. DE B. 2008]

Subject: Spanish news

1 Comment To This Article

  • Deep South posted:

    on 13th February 2008, 15:02:48 - Reply

    If you belief the Spanish government's explanation, you'll believe anything.

    The Spanish banks were stopped by the Bank of Spain from setting up SIVs' (special investment vehicles) so are carrying all the mortgages they wrote directly in their accounts.

    The property market is in freefall as both Spanish and expats have stopped buying, this frightened mindset feeds upon itself so it just gets worse.

    Add in the disgraceful forced evictions and swingeing fines of expats who did all the right things before buying a home and you have a self inflicted recipe for a real financial meltdown.

    BTW - news of the evictions and destruction of expats homes is now common knowledge throughout northern Europe.

    Will the Spanish wake up and smell the coffee - not a chance.