Progress made on Spain’s financial markets reform, IMF

Important progress has been made in reforming Spain’s financial markets for the European financial assistance for bank recapitalization agreed between Spanish and European authorities, an independent mission to Spain of the International Monetary Fund (IMF) has found.

Yet, it will be important to maintain the momentum as challenging steps lie ahead on several aspects, the IMF warned.

On the macrofinancial context, financial market conditions have improved since the announcement of the ECB’s Outright Monetary Transactions program, though they remain fragile, and the economy and banks face headwinds.

On bank restructuring and resolution, the bottom up stress test was technically robust and provides a sound basis for indentifying undercapitalized banks.

As already envisaged under the MOU, the capital shortfalls need to be quickly made up, recently-created burden-sharing tools applied, and non-viable banks promptly wound down.

“New mergers that do not clearly generate value or that place undue constraints on system-wide credit supply should be avoided,” the IMF said.

On the Asset Management Company (AMC), key design features and the general legal framework have now been defined.

“However, strong efforts will be needed to make the AMC fully operational by the end-November deadline. It will be important to ensure the right incentive structures, especially for the independence of AMC management and the effective management of the transferred assets.” the mission found.

Finally, on regulation and supervisory framework, significant progress has been made, including adoption of new consumer protection and securities legislation.
The second financial sector monitoring report is expected to be produced in the first quarter of 2013.

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