A month ago Europe bailed out Spanish banks but left Spain on the hook for the full $125 billion loan. Since there was immediate concern Spain might default on the debt, and that the new debt was senior to all private debt, private investors ran from Spanish bonds and Spanish borrowing costs spiked. Now Europe will just give Spain the money but with no strings, and hope for the best.
Tag Archives: spanish banks
Bank Run 101
Bank Run 101: Spaniards withdraw euros from Spanish banks and deposit them in German banks. Since Spanish banks still have the same loans outstanding, they go to the Spanish Central Bank for loans. Since all Spanish banks need money, the SCB borrows from the ECB which then borrows from the Bundesbank — because German banks are flush with Spanish deposits — to lend to the SCB which lends to Spanish banks.
The Reign in Spain
Yield’s on Spanish sovereign debt are skyrocketing, despite the latest $125 billion bailout. If Spanish banks fail, the cash-strapped government must bail them out. Unfortunately, failing banks have been the biggest buyers of Spanish debt. Given collapsing bond prices, an economy in recession, rising unemployment, a sovereign credit downgrade and falling property values, Spanish banks look horrible. Making matters worse, the bailout money is senior to all Spanish government bondholders.