Spain asks for bailout, Fed sets new banking buffer

A view of the Spanish bank Santander on May 18, 2012 in London, England.

Jeremy Hobson: One of the big rain clouds hanging over markets this morning is coming from the plains of Spain -- well maybe the cities. There are reports that the Spanish government could ask Europe to bailout its banks this weekend.

Chris Low is chief economist with FTN Financial, and he joins us live this morning from Washington. Good morning.

Chris Low: Good morning.

Hobson: So Chris, Spain is obviously a much bigger economy than Greece, which is having troubles of its own -- are things getting out of control in Spain?

Low: I think actually they are getting a little bit more in control. In the markets we've been aware that Spain needs a big bank bailout for a while, partly because their finance manager pretty much let the cat of the bag on Wednesday. But up until now, the conditions the Germans mostly were demanding were too stringent. It now looks like those conditions are relaxing. And that's what's allowed them to ask formally for help.

Hobson: Well let me ask you about the banks here in this country because there's something just happened yesterday from the Federal Reserve.  It has now decided it is going to require all banks -- even small ones -- to hold more cash on hand in case of trouble. Do you think that's a good idea with a weak economy?

Low: It depends on what you are trying to address. The reason the Fed did this -- it's part of an effort with international regulators -- they are tightening up rules so we don't have a repeat of what happened in 2008 and 2009. But it is going to restrictive for the economy because banks are not going to be able to lend as much in proportion to the amount of capital that they hold.

Hobson: Chris Low, chief economist with FTN Financial, thanks as always.

Low: You're welcome, thank you.

About the author

Jeremy Hobson is host of Marketplace Morning Report, where he looks at business news from a global perspective to prepare listeners for the day ahead.

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