Spain has announced it will launch an audit of its banks in an effort to assess their creditworthiness.
The independent auditors will probe bad loans and property holdings in the financial sector to determine how big a state bailout might be needed.
Spain was forced to act under European pressure to accelerate its bank clean-up.
Spanish Deputy Prime Minister Soraya Saenz de Santamaria explained the finer details at a press conference on Friday: “There will be two phases, the first, a very urgent and quick stress test within a month, and then a more detailed analysis of the balance on each entity. The cost of this will be covered by the Bank of Spain.”
The news follows a sweeping downgrade of Spanish banks by Moody’s on Thursday. One newspaper reported the Spanish government had also hired Goldman Sachs to carry out a valuation of Bankia, which was taken over by the state last week. In Madrid the mood was mixed.
One resident applauded the government’s decision: “We have to clean up the banks, we have to clean up the country and all the measures this government is taking are designed to do that.”
Whilst another Madrilena, Cipriana Martinez, expressed strong sentiments against who she sees as the culprits of Spain’s woes: “The banks are the biggest thieves out there. The people that have created this mess are the businessmen and banks.”
The government estimated it will need 15 billion euros to recapitalise the banks. Investors say Spain must address its troubled banks in an aggressive way to avoid an Irish-style bailout.