Luis de Guindos, Spanish economy minister, formally requested assistance from the country's eurozone partners to help recapitalise Spanish domestic banks, which are burdened by bad loans to property and construction companies and by a continuing sovereign debt crisis.
In a letter to Jean-Claude Juncker, the Luxembourg prime minister who heads the eurogroup of eurozone finance ministers, Mr de Guindos confirmed that the aim was to agree details and conditions of the loan in a memorandum of understanding before the next eurogroup meeting on July 9. “I have the honour to address you in the name of the Government of Spain to make a formal request for financial help for the recapitalisation of Spanish financial institutions that may require it”, the letter said.
Funds will go to the state Fund for Orderly Bank Restructuring (FROB), which will direct the money to banks in need. But the process will be closely monitored by the European Commission, the European Central Bank and the International Monetary Fund as well as by Spanish institutions.
As a condition of the bank bailout for Madrid, Spain’s eurozone partners are likely to require a deep restructuring of the Spanish domestic banking sector, which could involve the creation of one or more “bad banks” to house property assets and the forced liquidation of insolvent institutions. Officials will look at restructuring examples from Ireland, where a central “bad bank” was created, and Germany, where “toxic” assets were placed in separate vehicles alongside individual banks.
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