Spanish practices (Part 97)

16 April 2013 By George Hay Follow @gfhay

Retail clients of the worst Spanish banks were sold hybrid debt that was later haircut. Madrid is counting on healthier lenders to bail them out through its deposit guarantee fund. The ECB is crying foul. No wonder Germany is wary of a pan-European deposit protection scheme.

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The European Central Bank has challenged Spanish plans to use its deposit guarantee fund to compensate holders of hybrid debt in bailed-out banks, according to an ECB opinion published on April 10.
The ECB said that Madrid’s plans to levy a one-off charge of 0.3 percent of deposits on the sector, 40 percent of which will be payable next January, should be “carefully weighed” against the impact on bank capital positions. It also questioned whether the DGF’s “limited funds” should be best used to benefit retail investors, or for other financial stability measures such as replenishing the DGF.
The ECB also said that a plan to grant an exemption of 30 percent of the amount invested to those banks that have contributed equity to SAREB, Spain’s bad bank, was unjustified because the investments were business decisions that envisaged a reasonable return.

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