Moody’s says Spain’s bailout may not rescue all its banks

Tim Wallace
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THE SPANISH bank bailout will not be sufficient to fully recapitalise the broken institutions, credit ratings agency Moody’s warned yesterday.

And the Basel Committee warned the EU that it has fallen behind on two key areas in the implementation of tough new stability rules, which could give European banks an unfair advantage over global rivals.

Last week the Spanish government revealed seven of the country’s banking groups need a total of €53.7bn (£42.9bn) from the Eurozone for recapitalisation, following independent stress tests from consultants Oliver Wyman.

“Recapitalisation will materially enhance the solvency of affected institutions and help restore market confidence in Spain’s banking system as a whole,” said Moody’s. “However, the recapitalization amounts published by Spain are below what we estimate are needed for Spanish banks to maintain stability in our adverse and highly adverse scenarios,” the agency added, arguing that scepticism among market participants about the stress tests could undermine efforts to stabilise the banks.

Meanwhile the Basel Committee reported the EU has failed in its definition of capital and in the internal ratings-based approach for credit risk, slowing the implementation of new rules.

Banks could end up holding too little capital against risky low-rated government debt, it said, or hold buffers of too poor quality to absorb losses in a crisis.

But the EU’s Michel Barnier hit back at the Committee, arguing the findings “do not appear to be supported by rigorous evidence and a well-defined methodology.”

“I believe that this has led to an apparently significant lack of consistency in the way judgement and gradings have, in this preliminary phase, been applied in those two areas across jurisdictions,” he said.