Brussels, 03/02/2012 (Agence Europe) - The European Commission approves of the latest plans to reform banking in Spain, but warns that state aid should be avoided as far as possible when it comes to shoring up bank finances. The changes to the Spanish banking system to get banks to serve the real economy rather than speculation, will be crucial for the Spanish economy, said a spokesperson for EU Commissioner for the Euro Olli Rehn on Friday 3 February. Strengthening the banks most weakened by the collapse of the housing bubble should use market mechanisms first and foremost to reduce the impact of the bank reforms on the Spanish economy, which is still under pressure from the money markets, said the spokesperson, adding that the Commission was preparing a detailed evaluation of the reform plans.
On Friday, the Spanish government unveiled new bank reform plans, the third since the start of the financial crisis in 2008 and the collapse of the housing boom in Spain. Spanish banks will have to increase their own funding provisions by €50 billion this year. Half of this sum will be used to cover toxic assets, €15bn will form a buffer for toxic assets (repossessed land and housing-backed loans) and €10bn will be put in a special fund for non-toxic housing in case the situation deteriorates in the future. The pay of managers of banks and building societies bailed out by the state will be limited to up to €600,000 and up to €300,000 for the four banks that had to be nationalised.
The reforms aim to encourage mergers to enable weaker banks to be absorbed by stronger ones. Merged banks will be given special benefits, for example twice as long to increase their capital and the option of funding from the Spanish bank bailout fund (FROB), as long as they meet three conditions - namely increasing their assets by at least 20%, introducing a plan to ensure financial stability and the funding of the real economy, and unveiling merger plans by 30 May 2012. Banks El Santander, BBVA, Bankia and BMN have already said that they will meet the new requirements on time without any need for public aid, reports Spanish newspaper El País. (MB/transl.fl)