Brussels, 11/07/2012 (Agence Europe) - The European Union will be requiring Spain to overhaul its financial system, possibly at taxpayers' expense, and wants to authorise the European Commission to carry out inspections of Spanish banks, according to the draft 'memorandum' (conditions) on aid for Spanish banks.
The document sets out 32 preconditions for the aid for Spain's financial sector, due to be approved by 20 July (when Eurogroup will be finalising the details of the aid package, see EUROPE 10642). The memorandum says the cost to the taxpayer of bailing out the banks must be kept to a minimum, but wants the Spanish government to introduce measures to ensure that the holders of subordinate debt (non-priority for reimbursement) agree to a writedown. This would have to be in place before banks receive any capital, explains the document, which includes a mechanism for forcing bond-holders to agree to a writedown against their will. A law would have to be introduced by the end of August to this end but the Spanish government would then introduce amendments if private bond-holders refused to share the burden voluntarily. Another requirement is the separation of doubtful bank assets into a wind-down structure, which needs to be up and running by the end of November. Toxic assets must be swiftly removed from banks and building societies. When it comes to supervision, the EU wants Madrid to give its central bank greater powers this year, powers that are currently in the hands of the finance minister (the power to impose fines, for example). The European Commission, in collaboration with the European Central Bank and the European Banking Authority, will ensure that Spanish banks properly introduce the new measures and the Commission will have the power to carry out inspections of any bank to this end. (LC/transl.fl)