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Some Spanish Banks May Fail Stress Tests - Finance Minister
14 July 2011 @ 14:17

MADRID (Dow Jones)--Some Spanish savings banks may show a capital shortfall in the European Union stress tests due to be released Friday, finance minister Elena Salgado said.

Salgado had earlier said that she expected no Spanish bank to fail the tests, but speaking to journalists in Brussels on Monday, she backtracked: "I made this statement expecting the tests to be similar to last year, and assumed that the (Spanish banks') anti-cyclical provisions would be part of the capital calculation."

"It was surprising that these provisions wouldn't be included as capital, and as such, I cannot make the same estimate at this moment," Salgado said.

Spain's central bank in 2000 introduced a system of so-called anti-cyclical provisioning that forced banks to build up reserves against future, hypothetical losses. During times of economic growth, the system forces banks to set aside a provision for each new loan in case it goes bad. During the downturns, banks can draw on these general provisions to cover bad loans, lessening their need to cut back on lending or raise new capital.

The country's lenders still have about EUR27 billion in dynamic provisions.

Salgado made the comments ahead of a meeting of euro-zone finance ministers to discuss potential solutions to Greece's debt problems. The comments were broadcast on Spanish television.

"If the provisions were included, no savings bank would fail," she added.

In last year's test, five Spanish banks were among the seven lenders that failed.

Source: Wall Street Journal

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