EU welcomes Spanish banking rejig

25th January 2011, Comments 0 comments

Europe's competition watchdog welcomed Tuesday Spanish government plans to boost the balance sheets of indebted banks but warned it would demand the restructuring of any lender recapitalised with public funds.

Madrid outlined plans the previous day to inject up to 20 billion euros ($27 billion) into the banking system, especially regional banks heavily exposed to the collapse of the housing market in 2008.

The plan would allow lenders to "regain a financial situation suitable to the development of their traditional role, which is to give credit to the economy," Amelia Torres, the European Commission's competition spokeswoman, told a news briefing.

"This announcement should also boost confidence in the Spanish financial sector," Torres said.

The spokeswoman recalled, however, that since January 1 banks must present a restructuring programme to the European Commission when they are recapitalised with public funds.

"This recapitalisation must respect the conditions established by (EU) rules," she said.

Spanish banking shares sank earlier Tuesday as investors cast a sceptical eye on the government's plans.

Spain is racing to strengthen its banking system so as to fend off market fears it may need an Irish-style financial rescue. Those concerns have already pushed up the rates the state must pay to borrow from the debt market.

© 2011 AFP

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