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Spain’s Cabinet Approves Steps to Counter Bank Deposit War

Spain’s cabinet approved new rules to limit what regulators see as over-aggressive competition among banks to attract customer deposits.

Banks that “excessively remunerate” savers must make additional contributions to deposit guarantee funds, the prime minister’s office said today in a statement on its website. Based on current Euribor rates, those limits would be 2.93 percent for three-month deposits and 3.21 percent for those between three and 12 months, it said.

Banks will have to pay five times more in contributions to the funds for deposits that are above the new thresholds, the government said. The new rules, passed by decree at the weekly cabinet meeting in Madrid, aim to “put an end to the damaging effects of the growing ‘deposit war’ in the Spanish financial system,” the statement said.

“It’s great news for the banks because it will penalize those that were offering unreasonable deposit rates,” said Antonio Ramirez, a banks analyst at Keefe Bruyette & Woods Ltd. in London.

Lenders increased the yields they offer on deposits after wholesale financing costs surged because of investor concerns about government efforts to lower the euro region’s third- largest budget deficit.

“It looks like you’re getting a higher return when you take your money to the bank but it ends up creating a much more expensive loan because the bank has to charge someone for what it’s giving you,” Deputy Prime Minister Alfredo Perez Rubalcaba told reporters after today’s cabinet meeting.

Other rule changes will allow the Bank of Spain to set limits on the pay of executives at lenders that have received state bailout funds. The payment of between 40 percent and 60 percent of variable compensation awards to banking executives will also be delayed for at least three years.

To contact the reporters on this story: Charles Penty in Madrid at cpenty@bloomberg.net

To contact the editor responsible for this story: Frank Connelly at fconnelly@bloomberg.net

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