Madrid: Spain's government has approved a new financial sector overhaul required by Brussels as a part of a bank-rescue programme, creating an asset-management agency - or "bad bank" - to segregate troubled real-estate assets and paving the way for the orderly resolution of non-viable entities.
The overhaul, the third enacted by Prime Minister Mariano Rajoy's conservative administration since he took office in December, also requires all banks to raise their core capital ratio - a key measure of solvency - from 8 percent to 9 percent.
Deputy Prime Minister Soraya Saenz de Santamaria said in presenting the overhaul in a press conference that it is "a national necessity, essential to recover the loans and financing" urgently needed by small and medium enterprises.
The overhaul, required as a condition for a recently approved euro-zone bailout of up to 100 billion euros (USD 125.6 billion) for ailing Spanish banks, also bolsters the powers of the state-backed FROB bank-restructuring fund.
Saenz de Santamaria said the new mechanisms mark the final step in a plan to shore up Spain's financial institutions.
She said the goal of the overhaul is to "drive economic growth and employment" and "invigorate the real-estate sector" so banks can put up for sale the large stock of foreclosed homes they are carrying on their balance sheets in the wake of the bursting of a long-building real-estate bubble.
The property collapse in the context of the global financial crisis sent Spain into a severe economic decline. The country is currently in recession for the second time in three years and the unemployment rate stands at nearly 25 percent overall and more than 50 percent among young people.
Economy Minister Luis de Guindos said in the same press conference that the idea of the latest bank overhaul is for it to be a key factor in lifting Spain out of its deep economic crisis "without costing the taxpayer one euro".
"If we had had rules like this in place (earlier), the Spanish banking crisis could have been addressed in a totally different way," the minister said.
The idea is for shareholders and bondholders to bear the cost of the restructuring and/or resolution of weak banks "to minimize the impact on public funds, in other words on taxpayers' money".