The European Commission on Sunday welcomed a Spanish move that forces strapped banks to establish a new 30 billion euro ($39 billion) loan cushion and rid their accounts of risky property assets. "I welcome the measures announced on Friday by the Spanish authorities to further reform the banking sector," said EU economy commissioner Olli Rehn.
"A prompt and profound reform of the banking sector is a cornerstone of Spain's crisis response and its overall reform strategy." Rehn said the banking reform measure was a crucial addition to Madrid's efforts at consolidating its budget and implementing structural reforms aimed at laying a foundation for sustainable growth and job creation.
Rehn also voiced hope that the move would help Spanish banks regain the confidence of financial markets and institutional investors. Prime Minister Mariano Rajoy's government took the dramatic step Friday, two days after it nationalised the fourth-biggest Spanish bank, Bankia, to salvage a balance sheet drenched in red ink.
Madrid will charge two independent auditing firms with valuing banks' exposure to the collapsed property sector, which is still reeling from a housing bubble that popped in 2008, ministers said. Banks have already been told to set aside 53.8 billion euros as a buffer against expected losses from real-estate loans on which borrowers are likely to default.
While the banks have been tasked with finding the money, a Spanish public aid fund might lend them some of it in exchange for stakes in institutions that have to ask for help, Spanish authorities have indicated. That prospect drove Spanish stock market prices lower on Friday because investors expect Madrid to have to intervene again in favour of the banks. The Bankia operation was the eighth such move since 2008.
Bank of Spain figures show that commercial banks held problematic real estate assets, including loans and seized property, worth 184 billion euros, equal to 60 percent of their property portfolio at the end of 2011.
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