By Julia Pastor, in Madrid | The idea of a ‘bad bank’ has been floating over the Spanish financial scene since almost the beginning of the crisis. Yet, it was earlier this month, when the governor of the Bank of the Spain Miguel A. Fernández Ordoñez spoke in favor of this ‘instrument’, that the proposal started to take real shape. In fact, some of the international and Spanish media have indicated that incoming president Mariano Rajoy may have a report ready concerning the ‘bad bank’ and its alternatives.
The statements made by Fernandez-Ordonez warning that the need for a restructuring of the financial system ‘have increased’ and that ‘it would be a serious mistake’ to close the door on new tools that would allow us to count on solid entities, have ushered in an endless debate in the Spanish political and financial sphere.
The last one to give his opinion on the ‘bad bank’ has been the president of Banco Santander Emilio Botín,who Friday openly expressed his opposition to this mechanism, by arguing that
“it is not a solution. It’s something that is going to cost the tax payer money and it’s not going to improve the chances of credit.” According to Mr Botín, it is necessary to complete “the restructuring of the financial system and to consider it as the only solution to the problems being experienced by the sector.
Before Mr Botín did, other Spanish well-known voices have pronounced themselves with regards to the possibility of a ‘bad bank’. Joaquín Almunia, Vice President of the European Commission and Competition Commissioner, limited his remarks to saying that
“if the new government decides to implement it, it will examine it basing itself on the EU public aids legislation”.
The out-going Minister of Economy and Finance, Elena Salgado, reminded us a few days ago that
“the creation of a ‘bad bank’ was a condition so that Ireland, a country with an important real estate bubble, could ask for public aid.”
The Asociación Española de la Banca (AEB in English) has said that an entity that agglutinates the toxic assets of the sector is still a ‘support scheme’.
“We are not against aid but the entity that receives aid must be absorbed by another entity that because of its capacity and good management will help its future viability,” explained Pedro Pablo Villasante, secretary general of the association.
As far as the financial analysts are concerned, the Banc Sabadell team said that the creation of a so-called ‘bad bank’ would not take place until July 2012, when the governor of the Bank of Spain will leave his post. In any case, they point out,
“the date isn’t as important to us as the way in which it is finally carried out. The government’s objective is to reactivate credit, something which is difficult to achieve in and of itself due to the negative Spanish macro situation, but there are many other inconveniences: the capital impact on banks (unbalanced depending on the exposure) and the impact it could have on the deficit.”
In conclusion, the experts at Sabadell favour a formula that
“would eliminate the main risk (real estate) and that would not cause a significant impact on bank capital, and would noticeably reduce risks.”
Finally, Fernando Eguidazu, member of the Spanish think tank Civismo, prefers the creation of a ‘bad bank’ in an article that appeared this month in the magazine Consejeros.
Eguidazu writes that
“it would be the price that would have to be paid to clean up the financial system and which without a doubt would benefit the whole economy. The shareholders of the various entities would not come out of it unscathed.”
Also, he reminds us that this formula was used by Sweden and it obtained good results, and that there are two models: the German and the Irish. Possibly the best one for Spain is the Irish option.
Will there be a ‘bad bank’ on the Spanish financial kingdom, after all?
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