May 30 (Bloomberg) -- Bank of Spain Governor Miguel Angel Fernandez Ordonez denounced a “campaign” against him as he quit before his term expired and sparred with the government over the costs of a bank rescue and the feasibility of budget targets.
The mounting tension between the nation’s top banking regulator and elected officials helped send borrowing costs to a euro-era record amid speculation a bailout was needed.
“There has been a campaign against the prestige of the Bank of Spain,” Ordonez told reporters in Madrid today. He declined to answer questions from lawmakers in the Senate on the handling of the financial crisis, a day after saying he would leave his job a month before his term ends.
The governor, who has overseen banks since being appointed by the previous Socialist government in 2006, has faced criticism since the May 9 nationalization of Bankia group, Spain’s third-biggest lender. Borrowing costs compared with Germany’s rose to the most in the euro’s lifetime today, prompting Prime Minister Mariano Rajoy to call on European authorities to support public debt and bolster liquidity.
The risk premium of 538 basis points compared with 10-year German bunds puts the government in an “extremely delicate” situation, Ordonez said. Confidence, which has deteriorated amid the “handling of the last banking crisis,” is Spain’s biggest problem, he told the Senate’s budget committee.
Ordonez declined to take questions on the banking industry, saying he would support and follow the People’s Party government. He has asked to appear in Parliament to explain his management of the crisis, and the ruling PP, which has a majority in the assembly voted instead for him to appear before a closed-door committee.
The governor said it still wasn’t clear how much public money BFA-Bankia will need, even after the lender asked for 19 billion euros ($24 billion) on May 25. He also said it wasn’t clear how the government would do it and whether it would affect the deficit.
Economy Minister Luis de Guindos has repeatedly said public support for banks won’t affect the deficit. He said today the government’s FROB bailout fund will issue debt in the markets to rescue BFA-Bankia, as it has done in other cases. He denied a report in the Financial Times that the ECB had rejected a plan to use Treasury bonds, which can be used as collateral at the central bank, instead of cash, to shore up the lender. The European Central Bank also denied the report.
Criticism of Ordonez came from the People’s Party government, opposition parties and the bank’s inspectors. Jaime Garcia-Legaz, the deputy minister for trade, said two days ago that Ordonez was responsible for what had happened at Bankia, while Josep Duran i Lleida, the parliamentary leader of the Catalan CiU party, said on May 11 that Ordonez hadn’t “paid attention to banking supervision.”
Bank of Spain inspectors called for Ordonez’s resignation in a letter to Rajoy dated May 16 that was seen by Bloomberg News. The nationalization of Bankia days after the Bank of Spain approved its proposals to meet new banking rules was the last in a series of events that put into question the central bank’s credibility as never before, the inspectors wrote.
As the crisis deepened, the government took a more prominent role, reducing the Bank of Spain’s involvement. As part of its second attempt in three months to restore confidence in the banking system, de Guindos named consulting firms Oliver Wyman and Roland Berger this month to carry out a valuation of banks’ books. That will be followed by a more detailed audit of lenders by three companies.
That decision undermined the central bank’s sovereignty, CiU economy spokesman Josep Sanchez Llibre told de Guindos at a parliamentary committee on May 23.
Ordonez, born in 1945, decided to leave early to enable his successor to take over in time to handle the government’s latest plan to clean up the banking industry, the Bank of Spain said in its statement. Lenders must submit their plans by June 11 showing how they comply with new requirements, it said.
Spain’s Cabinet named Luis Maria Linde, a former director general of the Bank of Spain, to the central bank’s board on May 25, in a move that may put him in line to succeed Ordonez.
Linde, 67, first joined the Bank of Spain in 1983. He was director general of international affairs and in 2001 led the country risk division. He was named executive director for Spain at the Interamerican Development Bank in 2005 and was an adviser to the Bank of Spain’s international affairs department from 2009 to 2011, the government said on its website.
To contact the reporters on this story: Angeline Benoit in Madrid at firstname.lastname@example.org
To contact the editor responsible for this story: Craig Stirling at email@example.com