So it’s starting to look like the game could be up for a large chunk of the Spanish banking system. We’ve written before about the parlous state of the Spanish property market and, as a result, the hole into which the country’s banks have dug themselves. The latest Bank of Spain data shows that the country’s banks have increased their ECB borrowing to a record €49.6bn (£39bn). “A number have been issuing mortgage securities for the sole purpose of drawing funds from Frankfurt”, says Ambrose Evans-Pritchard in The Telegraph. “These banks are heavily reliant on short-term and medium funding from the capital markets. This spigot of credit is now almost entirely closed”.
read an interesting blog the other day about spanish banks in which the author mentioned the possible difficulties “for the Spanish treasury to guarantee bank deposits as happened in Germany (after 1995) and Japan (after 1992) or has happened recently in the UK in the case of Northern Rock, since under the terms of the cedulas if a bank fails the cedula holders have to be paid out in full before any depositor receives a penny”
A cedula by the way is a debt instrument secured against a pool of mortgages to which the investor has a preferred claim in the event of an issuer default.
Everything you need to know about property in Spain
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