Forcing mergers is the real aim of Spain’s financial reform

By Juan Pedro Marín Arrese, in Madrid | The outline of the financial reform, announced yesterday on Thursday by the Spanish minister of Economy, fails to provide the clue of what the government is aiming at. To begin with, the picture we were presented was one of sheer disarray: big holes in the balance sheets covered with meagre provisions and not a single tender word for the financial system. One would be tempted to think he was describing Lehman Brothers once it went bust. Fortunately, investors are well aware of the real merits and shortcomings of the Spanish banking institutions.

The only clear message was the massive provisioning requirements for real estate loans, amounting to €50 billion, to be tackled before the end of this year. For banks like Santander that is peanuts. Others like Bankia and Popular would simply fail to meet the target. Is it reasonable to impose such stiff conditions in such a tight timetable? No, unless you aim deliberately to turn broke a substantial part of your financial system. To pretend that in such circumstances credit will expand itself doesn’t make sense. Nor the claim that tough provisioning requirements will force banks to sell real estate at a loss.

So what is the real aim? Forcing sound banks to buy lame ducks, undoubtedly secures an exit way for Bankia and similar failures. But incentives put in place come short of delivering any hope for that to happen unless covert pressures were to be exerted. At the end of the day, the merger special track providing extra time and public loans for meeting the target would only serve to put together ailing banks and delay their adjustment. Summing up poverty you can only end up in sheer misery.

* Juan Pedro Marín Arrese is an economist.