Reuters has a good write up on the issues Spanish Banks are facing as their main liquidity provider is now the European Central Bank. Similar to the events after the Greek Crisis, the ECB wants to make this a sovereign concern and shift the responsibility back to the Spanish government.
The current state of the Spanish bailout, pending review from German legislators has not made this the best scenario from banks who desperately need the cash, but will be forced to accept harsher terms if the bailout money is destined to capitalizing the financial.
Spanish banks still have two lifelines. One is that the ECB loosened another aspect of its collateral rules in January so banks could pledge ropier ‘non-marketable’ securities, such as ordinary loans. This benefited Bankia (BKIA.MC), the soon-to-be nationalised caja, which still has stocks of eligible loan collateral and has not yet tapped ELA, according to a person familiar with the situation. And the central bank could loosen its rules even further. The other lifeline is the 100 billion euro Spanish bank bailout that the euro zone and Madrid have agreed in principle.
Herein lies the ECB’s shakedown. Rather than hand over the bailout money, Spain’s saviours want to ensure that it properly restructures its banks via a bad bank for toxic assets and potentially, haircuts for bank creditors. Until it is satisfied with progress, the ECB can make collateral-starved Spanish banks take pricier ELA rather than its own funding.
For the full article visit Reuters
