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Spain to Make Cajas Controlling Banks Set Aside Reserve Fund

Jan. 21 (Bloomberg) -- Savings bank foundations that control Spanish lenders will have to set aside a reserve fund to cover future capital needs.

Foundations that own more than 50 percent of the shares of a bank must also present a financial plan that spells out how it diversifies investments and manages risks, according to a draft law published today by the Economy Ministry.

Spain is responding to pressure to tighten oversight of lenders linked to former savings banks after weak risk controls at the so-called cajas led the country to seek a banking bailout last year. The Bankia group, formed from the merger of seven savings banks led by Caja Madrid, said in November it was set to post a 19 billion-euro ($25.3 billion) loss this year as it absorbs costs for cleaning up its soured real estate.

The memorandum of understanding for Spain’s banking bailout published last July committed the government to strengthen the oversight of cajas and make them reduce their stakes in lenders below levels of control. The government’s draft law allows cajas to retain control of banks while strengthening controls of governance and risk.

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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