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Bank Run Forces Spain To Request $125 Billion Bailout

Sunday, June 10, 2012 0:47

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Spain has officially requested a $125 billion bailout to keep its banks afloat after massive deposit withdrawals from the nation’s banks.

Three days ago Spain’s budget minister split with Spain’s prime minister announced the that country no longer had feasible access to borrow money from the financial markets.

He begged for bailout live on the radio after coming to the realization Spain’s banks need a massive cash injection to recapitalize the deposits that have disappeared due to the bank runs that have spread across Europe.

Just three short days later Spain’s economy minister is now officially requested Europe’s fourth bailout seeking $125 billion dollars to inject into the banks

The key thing to realize here is this bailout isn’t to help with the Sovereign debt crisis and in fact will only make Spain’s crisis worse by adding more debt on the nation’s unbearable debt load.

This bailout is simply to inject the banks with capital following the bank run after Spain’s 3rd largest bank announced it was insolvent and Spain is requesting it because they can’t borrow money from the markets at a rate which they will be able to pay back.

Bloomberg reports:

Spain Seeks EU’s Fourth Bailout With $125 Billion Request

Spain became the fourth euro member to seek a bailout since the start of the region’s debt crisis more than two years ago with a request for as much as 100 billion euros ($125 billion) in loans to rescue its banking system.

“The 100 billion euros is the number that we were looking for so I’m cautiously optimistic,” Olly Burrows, credit analyst at Rabobank International, said in a telephone interview from London. “We still have to find a solution to the sovereign debt crisis: it’s not done yet and we still have to press on with the task of uniting Europe.”

Economy Minister Luis De Guindos announced the aid request yesterday after a three-hour conference call with his European counterparts. He said the terms of the rescue loans are “very favorable” compared with market rates.

[...]European officials have failed to control a debt crisis that started in Greece at the end of 2009 and has now claimed the euro region’s fourth-largest economy. The bailout adds to the 386 billion euros ($480 billion) in pledges to Greece, Ireland and Portugal that European governments and the International Monetary Fund have made since 2010.

Failed Attempts

Spain has made at least four attempts to overhaul its banks since the collapse of the real estate boom in 2008, tightening provisioning rules, encouraging mergers and coaxing lenders onto the stock market. The International Monetary Fund said that “gradual approach” had allowed weak banks to undermine financial stability.

The Spanish government’s credibility was jolted by the funding hole reported last month by Bankia Group, the third- biggest Spanish lender. The bank’s new managers went beyond the government’s provisioning rules and asked for a 19 billion-euro bailout. De Guindos had said two weeks earlier that 15 billion euros would be enough to meet the requirements of the second of two banking decrees he has drafted this year.

[...]Source: Bloobmberg

Press TV reports:

Spain seeking EU bailout of its banking sector

Spain has announced that it will be asking for European Union financial assistance to save its banks, following emergency economic talks with eurozone finance ministers via videoconference.

“The Spanish government declares its intention to request European financing for the recapitalization of those banks that need it,” Spanish Economy Minister Luis de Guindos said at a press conference after the videoconference.

The loan, to be delivered via an existing bailout fund called the FROB, is meant to end the economic crisis in Spain and prevent devaluation of the euro.

The Fondo de reestructuracion ordenada bancaria (FROB), known in English as the Fund for Orderly Bank Restructuring (FOBR), is a banking bailout and reconstruction program initiated by the Spanish government in June 2009.

A new report by the International Monetary Fund estimated Madrid will need $50 billion to save its distressed banking sector.

De Guindos did not specify the amount but stated that Spain would request enough money for recapitalization, plus a safety margin.

The decision is seen as a U-turn in policy by Spanish Prime Minister Mariano Rajoy, who had firmly ruled out the need for a bailout for the country’s banking sector.

Spain has been under pressure to shore up its banking sector before the parliamentary elections in Greece.

There are growing concerns that the outcome of the Greek polls could lead to the country’s exit from the eurozone and further destabilize the euro.

Source: Press TV

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