Spain needs a Spanish SoFFin

When the financial crisis broke out Germany established a Special Financial Market Stabilization Funds (SoFFin) in 2008 to act as a bad bank to take over toxic assets from German banks under distress. In particular the HRE and the WestLB were given guarantees and liquidity to avoid a financial meltdown. Furthermore both institutes could split of a bad bank with this financial support.[1] Something similar is now needed in Spain. It should had happened year before. It was the denial of the Spanish government to accept that there is a major financial problem in their banking industry. Spanish banks[2] obviously need a consolidation under the governance of the Spanish government. They currently hold to many assets related to the Spanish real estate crisis[3] which are currently illiquid. This leads under the necessity to increase the own capital ratio according to the agreed rules of Basel III[4] and the respective stress tests[5] ,[6]of the EBA[7]. Since access to private capital to recapitalize the Spanish banking system is nearly impossible under the current circumstances, the Spanish government has to act as lender-of-last-resort. Otherwise the ongoing credit crunch in the Spanish financial system[8] will continue through the deleveraging of the Spanish banks. Instead the Spanish government is seeking financial help from the future ESM[9] which up to now is strictly reserved for governmental financial support of member countries of the Euro area. The attempt of the Spanish government to get access to the ESM resources for their distressed banking system has been unsuccessful.[10] There would be ample space for Spain to setup a Soffin-like fund to rescue the distressed Spanish banking system. The amount needed to stabilize the Spanish banking system would not exceed the capability of the Spanish government to finance it via a Spanish Soffin.[11] If you look at the most recent public-debt-to-GDP ratio of Spain in 2011 it is 68.5 percent. Way below the much higher level of Germany with 81.2 percent. So there is no need to ask for international support to save the Spanish banking system. This could be easily accomplished by Spain itself. It is just the hope that others would share the financial burden that creates this attitude to ask for everything for help not really needed.  It was the persistent denial of the Spanish banks and the Spanish government to accept the necessity of such a bad bank solution which has aggravated to current financial and economic crisis. Would they have acted earlier on, the current credit crunch could be been softened or avoided at all. The permanent attempts to mix-up the responsibilities between national government and the EU- and Euro Area Institutions endangers their reputation and credibility. Spain is not Greece, it can help itself. Thank God!

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11 Gedanken zu „Spain needs a Spanish SoFFin

  1. Pingback: 100 Mrd. Euro für Spaniens Bankensystem | My Blog

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