Spain approved a decree toughening capital requirements for banks on Friday, but pushed out a deadline for unlisted regional banks to get private capital on board by six months.
The decree forces savings banks, or ‘cajas’, to seek private capital, either by direct investment or stock market listings, in order to boost capital reserves diminished by indiscrimate lending to property developers during a property boom and bust.
“We have approved this decree today in order to reinforce the solvency and sustainability of our financial sector so that it can continue lending even at difficult times,” Economy Minister Elena Salgado told reporters at a press conference.
Spain remains under intense market scrutiny on concerns about the health of its banks and its high debt but the socialist government’s moves to overhaul its banking system have led to a slight drop in its borrowing costs recently.
The government has given savings banks until September to clarify their plans to get private capital on board, either by direct investment or stock market listings but pushed out the deadline for listing to March.
Cajas had complained the original September deadline did not allow enough time to organise stock market flotations.
The new requirements set in law did not differ greatly from proposals made by the government in recent weeks, despite wrangling from cajas to soften the terms.
The government demanded an 8 percent minimum core capital ratio — a measure of a bank’s ability to withstand financial shock — for listed banks. That jumps to 10 percent for unlisted banks that fail to attract private funds for more than 20 percent of their equity.
Aid from the state-backed fund, set up to help savings banks merge, would count towards core capital, Salgado said.
The government will nationalise those savings banks that fail to achieve the stringent core capital levels, which match tough Basel III rules laid out by global regulators.
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