Banking shares plunged on the Madrid stock exchange after the Spanish government said it has been forced into its first bank rescue since the financial crisis began.
Spain’s central bank will assume management of the regional savings bank Caja Castilla la Mancha. It will pump liquidity into CMM to keep it afloat, backed by government loan guarantees of up to nine billion euros. Spain’s Deputy Prime Minister, Cristina Fernández de la Vega, said: “Caja Castilla la Mancha will meet all its obligations. I repeat, everybody should remain calm because their savings and their money are guaranteed.” Finance Minister Pedro Solbes said: “It is a solvent organisation. Its net capital is positive. Of that there’s no doubt. There’s no financial hole in Caja Castilla la Mancha’s accounts.” Solbes insisted this was an isolated case, and that overall the Spanish banking system remains “extremely healthy” but analysts fear other savings banks could also be hit by the collapse in Spanish property prices. In another sign of the effects of the financial crisis, inflation fell in Spain in March by 0.1 percent. It is the first year-on-year fall in consumer prices by a euro zone country during this crisis. The figures were however distorted by the fact that Easter fell in March last year and boosted prices then.