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Spanish banks face tough conditions for EU bailout

11 July 2012, 11:38 CET
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(BRUSSELS) - Spain will have to force investors to take losses and allow European Union inspectors to visit bailed out banks in return for a multi-billion-euro rescue, according to a draft deal published Wednesday.

The conditions imposed by eurozone partners, widely revealed by Spanish media, will force the government to reform its financial sector in the wake of a banking crisis that is threatening to drag Madrid into a full-blown bailout.

EU finance ministers offered on Tuesday to provide Spanish banks 30 billion euros this month, the first batch of a rescue that could reach as much as 100 billion euros ($123 billion).

With eurozone governments growing tired of tapping taxpayers to help out other nations, the draft deal compels Spain to impose losses on the banks and investors before any aid is disbursed.

"Steps will be taken to minimise the cost to taxpayers of bank restructuring," says the draft memorandum of understanding, which is expected to be finalised at a special meeting of eurozone finance ministers on July 20.

"Banks and their shareholders will take losses before state aid measures are granted and ensure loss absorption of equity and hybrid capital instruments to the full extent possible," the document says.

The draft deal outlines a strict calendar of measures the Spanish government and banks must undertake over the course of an 18-month rescue programme.

The government will have to hire an external consultant to conduct stress tests on 14 banking groups representing 90 percent of the banking system in order to estimate their capital shortfalls. The exercise must be completed by the second half of September.

Banks receiving eurozone aid will have to open their doors to the European Commission, the European Central Bank and the European Banking Authority. The government will also have to impose caps on executives' bonuses.

"The European Commission in liaison with the ECB and EBA will be granted the right to conduct on-site inspections in any beneficiary financial institutions in order to monitor compliance with the conditions," the document states.

For its part, the Spanish government will have to bolster the independence of the Spanish central bank by transferring by December 31 the sanctioning and licensing powers currently in the hands of the economy ministry.

The government will also have to consult with the European Commission and the ECB before adopting any new laws related to the financial sector, the draft says.


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