Spanish Bank on the Brink as Run Fears Grow

Government will pour in billions more to prevent collapse
By Mark Russell,  Newser Staff
Posted May 26, 2012 5:38 AM CDT
Spanish Bank on the Brink as Run Fears Grow
In this May 18 photo, a man uses an ATM at a branch of the Bankia bank in Madrid.   (AP Photo/Daniel Ochoa de Olza, file)

Spain's banking crisis grew sharply worse yesterday, as officials at Bankia, the country's leading mortgage lender, said it would need an additional $24 billion, reports the New York Times. The move effectively nationalizes the troubled bank, just two weeks after the government took over 45% of Bankia, and single-handedly would nearly double the size of all the Spanish government's banking bailouts since 2010, notes the Wall Street Journal. Standard & Poor's also cut its credit rating on Bankia and two other Spanish banks to junk status, and lowered the ratings on two other banks.

Regional indebtedness is also hammering the Spanish government, as Catalonia—Spain's economic engine and source of one-fifth of the country's GDP—said yesterday it would need central government help financing its debts. All these crises are being made all the worse by a steady outflow of assets as the Spanish move their money abroad, threatening to create a bank run and seize up the entire Spanish banking system. With $1.25 trillion in deposits, Spain's banking industry could pummel Europe's financial system and the world's if it were to collapse. "Spanish bank restructuring is a moving target—the deeper the downturn, the greater the scope for a further deterioration in banks' asset quality," says one consultant. "This is easier said than done." (Read more Spain stories.)

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