New EU capital rules will boost Spanish banks

Spanish banks will benefit from new capital requirements set by the European Banking Authority, said ECB executive board member Jose Manuel Gonzalez-Paramo.

Speaking to Cadena Ser radio, Gonzalez-Paramo said the banks should be cleared from suspicion about weaknesses in their balance sheets due to lingering doubts about their exposure to the housing sector.

The impact of the new capital requirements was based on as yet provisional data, but the new rules should help to raise confidence in Spanish banks, he said. The country’s banks have been rocked by the housing sector crisis and several savings banks have had to be bailed out or merged to avoid bankruptcy.

The new capital requirements make a few assumptions about the banks’ potential capital needs. This includes taking into account the market value of the debt that the banks hold on their books. But the reaction of the markets has been positive, Gonzalez-Paramo said. “With this new recapitalization, Spanish banks will be cleared of suspicions about their weakness” Gonzalez-Paramo said.

Earlier, the Bank of Spain said Spanish credit institutions have detailed their individual capital needs and the broad strategy they will need to follow to comply with the new rules.

The central bank says final calculations of capital and sovereign exposure will be available by mid-November, but the banks have already indicated that they aim to comply with the requirements through their own ability to generate capital and that they will not need public sector support to shore up their capital base. The Banco de España said it considers “the achievement of the [banks’] proposed objectives to be plausible.”

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