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Bank of Spain Review Urges Tighter Supervision of Lenders

Jan. 9 (Bloomberg) -- The Bank of Spain should increase oversight of the country’s banks, according to the recommendations of an internal review conducted under the terms of a European bailout.

Inspection teams based at banks should extend the scope of their work to cover the 16 most “relevant” lenders, the Bank of Spain said on its website today, citing the recommendations of a commission scrutinizing supervision practices. The largest loan portfolios will be subject to inspections every three years, it said.

“The purpose of the review has been to carry out a diagnosis of the supervisory procedures of the Bank of Spain with the aim of identifying shortfalls and formulating reform proposals,” the commission said.

Spain was forced to seek European aid to rescue struggling lenders including the Bankia group last year, leaving taxpayers with a bill estimated by the European Commission at 52 billion euros ($68 billion). No one had wanted to acknowledge that risks were accumulating during the “bubble years” for Spain and Europe, Bank of Spain Governor Luis Maria Linde said in July.

El Pais newspaper this week published stories citing a report by the association of Bank of Spain inspectors that criticized the regulator, alleging it was too lax on bank compensation practices and when infractions were highlighted. El Pais said the inspectors also accused the central bank of changing the conclusions of their probes.

In a statement published last night, the executive committee of the Bank of Spain said it “profoundly lamented” the spread of some of the claims in the report and it had sought “ to comply with the best international standards of rigor, independence and technical quality.”

To contact the reporter 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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