6 Jun 2012

Spain: No plans to bail out banks

Spain has denied claims its banks need an urgent bailout as EU plans are announced to halt taxpayers’ money being used to bail out failed banks.

Spanish economy minister Luis de Guindos said no decision would be made until audits of the banks were completed, possibly by the end of June.

There have been reports in the last few days that Spain was seeking an immediate bailout from eurozone funds.

Mr de Guindos was speaking in Brussels, where proposals aiming to avoid taxpayers having to fund future bailouts of banks have been published.

Confirmation that there will be no urgent bailout of Spain sent shares in leading Spanish banks up around 3 per cent during morning trading.

The plans – sometimes referred to as “living wills” for banks – aim to minimise the impact on taxpayers and make sure ensure losses are paid by bank shareholders and creditors.

It plans to avoid a run on a bank in a troubled eurozone country such as Spain hurting the entire banking system.

The plans include allowing financial regulators to take a more aggressive approach in the running of banks as firms’ stability worsens, as well as forcing banks to draw up explicit “recovery” and “resolution” plans in the event of their finances deteriorating.

It is also suggested that a sale of a bank and its assets can be forced for the benefit of customers, overriding the interests of creditors or shareholders.

However, new legislation is unlikely to came into force before 2014 at the earliest.

Read more: how safe are Britain's banks?

With speculation growing that Spanish banks, and possibly those in Cyprus, will need support very soon, that would be too late to protect taxpayers from shouldering the burden.

Spain is trying to find more than 80bn euros to bolster its banks’ reserves.

On Tuesday, Spain’s finance minister said the credit markets were “effectively shut” to his country.

Cristobal Montoro told Spain’s Onda Cero radio “the door to markets is not open for Spain”.

A key test will come on Thursday, with Spain due to auction up to 2bn euros of bonds.

Meanwhile, on Wednesday Moody’s cut its risk rating for several German and Austrian banks, including Commerzbank.

Moody’s said German lenders face risks to the quality of their assets if the eurozone crisis deepens or the global economy slows more, but also noted the relative strength of the German and Austrian economies.