Spanish Banks Passed IMF’s Pre-Crisis Stress Tests Including A 30% Drop In Property Prices

Spanish banks more liquid and less vulnerableBank of Spain's facade

Before the crisis, Spain’s financial system passed the International Monetary Fund (IMF) stress tests which included a 30% drop in property prices, according to Pedro Pablo Villasante, former managing director of Supervision at the Bank of Spain between 2000 and 2006.

During his appearance before the Congress commission investigating the financial crisis, the banking sector’s bailout and the savings banks’ collapse, Villasante defended the “robustness” of Spain’s credit system. He attributed its collapse mainly to the consequences of the country’s second recession in 2012-2013, which was fuelled fundamentally by the debt crisis.

As an example, he cited the stress tests carried out by the IMF between 2005 and 2006 and its conclusions. The international organisation said that the domestic (financial) sector was “vibrant, very competitive and well supervised and regulated.” It highlighted the professionalism of its management, the level of the banks’ capitalisation and their capacity to overcome “adverse shocks”.

He claimed that Spain’s financial institutions’s solvency level allowed them to “better withstand the initial onslaught ” of the economic crisis. That said, he acknowledged that the provisions were “sufficient” for the second recession in 2012 and 2013, which he believes was “key to how things developed at the banks.”