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Spain hikes bank capital needs to raise confidence

Source: Reuters - Wed 9th Feb 2011

Spain's Minister of the Economy said today that some banks would have to raise their core capital ratios above a new minimum in order to bolster investors' confidence in their funding methods.

In a letter to the Spanish Banking Association, Elena Salgado said banks that were unlisted or whose private ownership was less than 20% would need a core capital ratio of 10%, if 20% of their outstanding loans relied on wholesale funding. The Minister said the government planned to implement the new requirement immediately. The general minimum core capital ratio Spain now requires is 8%.

"This is justified given the importance that banks of this type should maintain the full confidence of their investors at such time as they use wholesale funding, even in difficult times," Salgado wrote.

The core capital requirements based on tough new banking rules is known as Basel III.

Salgado added it would ask the Bank of Spain to determine each bank's capital situation, based on their balance sheets for the end of 2010 and, if needed, the maximum in fresh capital banks would need to meet the new threshold.

Banks will then be required to draw up plans as to how they shall meet the new requirements, and the central bank will review progress in September.

The Bank of Spain may require some banks to raise core capital still higher should they have a shortfall in a worst-case scenario in stress tests conducted by the Bank or at the European level.

It added those banks which needed to and did not make the 10% level would need to draw up plans to raise capital, which would be reviewed in September.

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