The Spanish financial crisis of 2008-12


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Although 10 years have passed since the Spanish bank restructuring, some recent news about one of its instruments, the Management Company for Assets Proceeding from Bank Restructuring (Sareb), has brought it back to the news. Let’s see some observations to some misunderstandings about said restructuring.

When are losses generated in a banking crisis? The money that the Spanish authorities injected for bank reorganization in 2012 had as its fundamental objective to cover the losses incurred (recognized in accounting) and expected (result of a prospective analysis, without reflection in accounting) of the banks, that is, that money was already lost in 2012 (and this was reflected in the FROB and State accounts). With the bank rescue, the state

assumed the negative consequences of wrong business decisions made in the past. Why was that done? Because the alternative was the liquidation of the entities and that would have been much more costly for taxpayers, creditors, depositors and, in general, for financial stability.

Why was Sareb created? To try to recover the maximum possible value of the assets related to real estate development that the banks that received public aid in 2012 had accumulated over the years (around 470,000 million in 2008). If these assets had been sold immediately, and not in fifteen years (the expected life of Sareb), the real estate crisis existing in Spain at that time would have intensified (due to excess supply) and the aforementioned banks would have suffered greater losses , so much more public money should have been injected for its restructuring. The start-up of Sareb was very important to recover the credibility and financing capacity of the financial system, and thus achieve a solid and sustainable economic recovery.

Have the almost 35,000 million of Sareb’s debt that was reclassified last year as public debt been lost? No. That amount should be reduced as the assets still available for sale (with a balance sheet value of just over €30 billion) are sold. What is clear is that Sareb’s involvement in social housing policies (transferring real estate to public or non-profit entities) can negatively affect the objective of maximizing economic value, since any sale or transfer below book value would imply a loss for the entity (and, ultimately, for the State as guarantor of the senior debt). Nothing is free.

Let us end with an assessment of the Spanish banking restructuring of the International Monetary Fund in 2014: «The actions under the program have significantly reinforced the capital, liquidity and cleaning up of the financial system… Inaction would have produced a cycle of deepening deposit flights , more bank failures and a credit crunch. Financial market conditions have improved dramatically during the programme, with the Spanish sovereign spread and the foreign financing spread of Spanish banks falling by more than 75%… The real economy is beginning to recover, with increases in production and a reduction in of unemployment… The Spanish program contributed not only to Spanish financial stability, but also to that of Europe, reinforcing the anti-crisis measures launched by the ECB».

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Antonio Carrascosa was CEO of FROB

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