Bank of Spain sees new savings bank rules in July

Spain's central bank expects a bill allowing savings banks to issue shares and strengthen their balance sheets to be drafted by the end of July, a senior official said on Tuesday.

Spain has overhauled its 45 savings banks - or "cajas" - through a wave of recent mergers to halve their number and support the weaker ones, which have been hit by the end of a property boom in which they invested heavily. Concern about the cajas' health continues to unnerve financial markets however.

"The reform is expected to be concluded this month with a proposal to modify the cajas law, which will allow them to obtain high quality funding, and table plans for a brighter future" Bank of Spain Deputy Governor Javier Ariztegui said.

"It is well known that savings banks cannot issue shares. This not only reduces their capacity to bolster capital, but limits the market's ability to discipline them" he added in a speech in the northern town of Santander.

Ariztegui also welcomed the publication of stress tests for all of Spain's listed banks and cajas, in line with results due to be published on banks across Europe on July 23.

"The publication of the stress test results, which will be especially broad in this country due to the coverage and communication efforts by the Bank of Spain, will show how solvent the Spanish banking sector is" he said in the speech, a text of which was published by the central bank.