* EU agency ESMA - move was to stem threat to financial
* Liberbank stock recovers after short-selling ban
* Regulator sees no liquidity stress at bank - source
(Updates with regulator statement and source)
By Jesús Aguado and John O'Donnell
MADRID/ FRANKFURT, June 12 Spanish regulators
imposed a short-selling ban on Liberbank on Monday in
order to stem what European authorities described as a potential
'domino effect' that could have damaged the country's entire
Last week, European authorities orchestrated a rescue of
Spain's Banco Popular, a move that resulted in heavy
losses for shareholders and some bond investors.
That in turn prompted a steep fall in the share price of a
small Spanish lender, Liberbank, wiping almost half of the
bank's market value.
On Monday morning, Spanish stock market regulator CNMV said
it would ban short selling in Liberbank stock for one month.
A CNMV official said it wanted to avoid any loss of
confidence in Liberbank and that the regulator was not
considering extending the ban to other lenders for now.
The European Securities and Markets Authority (ESMA) also
issued a detailed statement that backed the move, explaining the
urgent circumstances that led to it.
ESMA said that the step had been needed, in the eyes of
Spanish authorities, to tackle the threat to market confidence
that "could have further implications in terms of financial
stability in Spain" following the 'demise' of Banco Popular.
"Due to the interconnections and perceived similarities with
other entities, the situation could have a domino effect of a
size that could become systemic," ESMA said, warning of a
'contagion' that can hurt the entire financial system.
The announcement of the ban led to a rebound in the share
price of the lender that was formed in 2011 from the merger of
three regional savings banks and which controls around two
percent of all Spanish deposits.
The stock rebounded more than 20 percent. Its shares were up
28.4 percent at 0.873 euro at 0906 GMT. The Spanish regulator
said it would decide later whether or not to extend the ban
beyond one month.
The CNMV said it had taken this decision after the recent
stock price fall of Liberbank in the aftermath of Popular's
But it sought to draw a distiction between the two banks.
One official said that Liberbank's situation was different to
Popular, whose finances had been stressed.
Banco Popular, which had booked revised losses of 3.6
billion euros ($4 billion) in 2016, was rescued after the ECB
said there was a deterioration in its liquidity in the days
leading to its rescue.
The official from the stock market regulator said they had
not found any evidence of any liquidity problems at Liberbank.
Regulators took the action even though there were few
betting on a further fall in the bank's stock. ESMA said that in
early June, short positions accounted for around 1.4 percent of
"Without the proposed measure, the threat to market
confidence would remain and would be difficult to tackle," ESMA
Short selling is the sale of a security that is not owned by
the seller, or that the seller has borrowed, and motivated by
the belief that a security's price will decline, enabling it to
be bought back at a lower price to make a profit.
($1 = 0.8911 euros)
(Additional reporting by Robert Hetz and Gdynia newsroom;
Editing by Julien Toyer and Louise Heavens)