Spain's Salgado Hopes ECB Aware of Banks' Cash Needs as Year Loan Matures
Spanish Finance Minister Elena Salgado said she hopes the European Central Bank is aware of lenders’ cash needs as the ECB’s first 12-month loan expires.
Banks on July 1 need to repay 442 billion euros ($540 billion), the biggest amount ever awarded by the ECB and a key plank in its efforts to fight the financial crisis last year.
“The ECB doesn’t like governments telling it what to do, I would just say that I hope that on this occasion, as on others, the ECB is conscious of the needs of our financial system,” Salgado said on Cadena Ser radio in Madrid today.
Spanish policy makers are concerned about the expiry of the 12-month facility as Europe’s sovereign debt crisis makes banks wary of lending to each other. The Frankfurt-based ECB, which continues to lend banks as much money as they need at its benchmark rate of 1 percent, no longer offers 12-month loans. It will offer three-month money at a tender tomorrow.
International capital markets are “closed” to most Spanish companies and banks, Francisco Gonzalez, chairman of Banco Bilbao Vizcaya Argentaria SA, Spain’s second-largest bank, said on June 14.
Uncertainty over the strength of Spain’s savings banks, which are going through a series of mergers with support from a government rescue fund, has helped send the risk premium on Spanish government debt to a euro-era record.
Risk Premium
The extra yield investors demand to hold Spanish 10-year bonds rather than the benchmark German equivalents rose to 199.4 basis points today from 195.1 basis points yesterday. The spread reached a euro-era record of 221.2 basis points on June 16.
Spanish bank shares plunged. Banco Santander SA, the country’s biggest bank, fell 5.5 percent to 8.56 euros at 4:16 p.m. in Madrid and Banco Bilbao Vizcaya Argentaria SA, the second biggest, dropped 5.9 percent to 8.468 euros.
“The ECB, the eurosystem, will do everything so that the necessary liquidity is there,” ECB Governing Council member Christian Noyer said today on France’s Europe 1 radio. “It’s an important deadline. There are some banks that are in a less good situation that could suffer. But we’ll make sure there is no problem and that all of this goes well.”
French banks will have “no problem” with the expiry of the 12-month loan as they haven’t borrowed “that much,” Noyer said.
Eliminating the yearlong tender is part of the ECB’s long- term exit strategy and the bank has taken “every precaution” to avoid a liquidity squeeze, Governing Council member Ewald Nowotny said in Vienna today.
“The decision not to renew the 12-month tender is to be seen as a long-term exit strategy,” he told reporters. “In the meantime there have been special actions taken, but the basic strategy -- the long-term exit strategy -- this is valid.”
Salgado said Spanish banks are strong, and that will be made clear by stress tests, which Spain will ask European finance ministers to publish as soon as possible.
“At the next Ecofin meeting in two weeks, Spain’s request will be for our stress tests to be published immediately, to show that our whole banking system has an excellent solvency position,” she said.
To contact the reporter on this story: Emma Ross-Thomas in Madrid at erossthomas@bloomberg.net
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