(The authors are Reuters Breakingviews columnists. The opinions
expressed are their own)
By George Hay and Christine Murray
LONDON/MADRID, Aug 20 (Reuters Breakingviews) - Spain’s
banks may have begun to get the Greek treatment. When Athens’
lenders began to use too much of the European Central Bank’s
conventional liquidity support measures earlier this year, the
ECB moved to shift some of the risk onto the Bank of Greece’s
and the government’s own balance sheet. Something similar looks
to be afoot in Spain.
As of the end of July, Spanish banks were borrowing 410
billion euros from the ECB, according to the Bank of Spain.
That’s the most ever. But as significant was what happened to
the section of the Spanish central bank’s balance sheet that
usually denotes so-called “emergency liquidity assistance”,
where losses are borne by Spain itself. From a lowly 2 million
euros in June, this jumped to 402 million euros.
That may not sound much. But it could rise because the
funding sources of Spanish banks are drying up. In May, they had
already burned through their 'marketable' collateral eligible
for conventional ECB operations, according to Deutsche Bank
estimates. They might need to find more if Spain gets
downgraded. But the ECB recently made one way to do this harder:
it stopped accepting new government guaranteed bank bonds in
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.
The same dynamic may explain why ELA use for Greek banks
ballooned by 72 percent to 106.3 billion euros between June and
July: the ECB wants the Greek government and political parties
to focus on delivering their austerity programme. Spanish banks
may not welcome the comparison with their Greek peers. But it is
becoming all the more apt.
SIGN UP FOR BREAKINGVIEWS EMAIL ALERTS:
- Spanish banks’ use of liquidity facilities from the
European Central Bank rose to 410 billion euros at the end of
July compared to 343 billion euros at the end of May, according
to Bank of Spain figures.
- Their probable use of so-called emergency liquidity
assistance (identified in the balance sheet entry, “Otros
activos en euros frente a entidades de crédito de la zona del
euro”) rose from 1.7 million euros in May to 1.8 million euros
in June, and then up to 402 million euros in July.
- Bankia has not tapped so-called emergency liquidity
assistance, according to a person familiar with the situation.
- Spain is now able to request the first 30 billion euro
tranche of its bank bailout which is being held in reserve by
the European Financial Stability Fund, according to its
Memorandum of Understanding. A spokesperson for the economy
ministry said on Aug. 16 that the funds will be received
- Spain had 308 billion euros of securities eligible for use
in ECB liquidity operations in May, according to Deutsche Bank
estimates using assumptions from disclosures of Italian bank
collateral holdings. However Spain had already taken 316 billion
euros of ECB liquidity.
- Bank of Spain balance sheet, July 2012:
- Bank of Spain balance sheet, May 2012:
- Bank of Spain balance sheet, June 2012:
- Reuters: Greek banks' ECB funding drops in July, ELA up
- For previous columns by the author, Reuters customers can
click on [HAY/]
(Editing by Pierre Briançon and David Evans)
Keywords: BREAKINGVIEWS SPAIN/
(C) Reuters 2012. All rights reserved. Republication or redistribution of
Reuters content, including by caching, framing, or similar means, is
expressly prohibited without the prior written consent of Reuters. Reuters
and the Reuters sphere logo are registered trademarks and trademarks of
the Reuters group of companies around the world.