Spain is said to be planning a partial state takeover of its weakest savings banks which are stuck with high levels of bad property loans.
There are reports that it would force the debt-laden regional savings banks – known as cajas – to become conventional banks and list their shares on the stock market.
The government backed bank restructuring fund would then take stakes in the banks that fail to attract private investment
The idea is to reassure investors that a rescue would not add to Spain’s deficit.
Spain is aggressively cutting its budget deficit to stave off fears it will need an Irish or Greek-style rescue from the European Union and International Monetary Fund.
The Bank of Spain forced the cajas last year into a round of mergers, reducing their number to 17 from 45. Five of them failed Europe-wide stress tests on banks last year.
They must reveal by 31st January more details about their bad loans and property holdings. Only one caja has done so far, but once all the reports are in, Spain’s central bank will be able to give a clear idea of the total recapitalisation needs.