The Government has introduced higher capital requirements and bigger provisions on property portfolios with the objective of driving down house prices.
It’s not often a Government actively targets lower house prices, but that’s what this Government believes it has to do to clean up the banking system and get credit flowing again.
The main measure being introduced is higher provisions on the property portfolios held by banks.
“We believe that with this reform we will give credibility to the financial system and clear up the doubts surrounding the banks’ real estate assets,” de Guindos told the Spanish press.
By Government estimates, the Spanish banking system is troubled by €175 billion of loans to developers that are in default.
By forcing banks to recognise bigger provisions, the Government hopes house prices will fall, the property market will pick up, and banks will start lending again.
But some experts have warned that the new measures will fail.