Bank of Spain bails out savings bank | world | Hindustan Times
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Bank of Spain bails out savings bank

world Updated: May 22, 2010 16:24 IST
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The Bank of Spain has stepped in to bail out a regional savings bank after merger talks with another similar entity broke down, officials said Saturday.

Bank of Spain governor Miguel Angel Fernandez Ordonez said early Saturday that the step had been taken to guarantee Cajasur, an Andalucian savings bank based in the southern city of Cordoba, which had been founded and controlled largely by the Catholic church, could continue operating as normal.

At 1:30 am Saturday Fernandez said the Bank of Spain had decided to replace the entire board of directors of Cajasur. "As a result, depositors and creditors can maintain absolute peace of mind," Fernandez said.

The bank's governor said the country's banking sector had nothing to fear from the bailout. "Spain's financial system is absolutely not going to see its solidity affected by this situation," Fernandez said.

It is only the second regional savings bank bailed out by public money after the Bank of Spain intervened in March 2009 to take control of Caja Castilla-La Mancha.

Fernandez said the bailout came after Cajasur failed to arrive at a merger agreement with Unicaja, another southern regional savings bank.

Cajasur reported a €596 million ($749 million) loss in 2009. In June 2009 Spain's government unveiled a fund of up to €90 billion ($125.46 billion) to help banks restructure and cope with the effects of the global financial crisis.

Finance Minister Elena Salgado said the money could be destined for capital injections, to ease mergers and to fund restructuring plans.

Spain's banking sector has largely weathered the financial crisis thanks to strict financial regulations that forced banks to set aside provisions during an economic boom fueled by construction and consumer spending.

Once the building boom deflated many lenders, especially smaller savings banks, found they were heavily exposed having lent heavily to fund the once burgeoning real estate sector. Many have struggled with rising levels of bad loans.

Once banks have accepted fund money they can be forced by the Bank of Spain to merge with other more stable banks if their solvency continues to be in jeopardy.