Spain has mounted its first major bank rescue in 16 years, as the economic crisis bites deeper. The Bank of Spain has appointed administrators to govern the small regional bank Caja Castilla La Mancha. And the government has pledged to guarantee up to 9-billion euros of its liabilities.
The last major rescue was in 1993, shoring up the Banco Espanol de Credito. Till now, the country’s banking system has not been badly affected by the global downturn. Regulations prevent investment in complicated mortgage-backed securities.
But there have been fears small, regional banks were too exposed to property-developers. The economy minister said the situation was an isolated liquidity problem:
Pedro Solbes said: “The savings banks are solvent, like the financial system is also. I feel pretty relaxed about the savings banks. Are they totally immune in the long term? If we keep having the liquidity problems we are seeing now I don’t think anyone could say that.”
Spain’s economy is in the grip of its worst recession in half a century. Loan defaults have tripled since the financial crisis began in 2007. The property sector, once a major driver, has all but ground to a halt. And unemployment is at an EU high of 14 percent.