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European Debt Crisis

Spain seeks to rescue its big bad Bankia

Christopher Werth May 28, 2012
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European Debt Crisis

Spain seeks to rescue its big bad Bankia

Christopher Werth May 28, 2012
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Adriene Hill: In Spain, the Spanish government is wrangling with how to rescue its troubled banks. The Spanish bank Bankia needs about $24 billion in new capital.

Reporter Christopher Werth joins us from London to explain and translate. Good morning Christopher.

Christopher Werth: Good morning, Adriene.

Hill: So, catch us up here. Why is Bankia in so much trouble?

Werth: Well, first of all, I should say, Bankia is big. It’s Spain’s third largest bank. And it’s sitting on about $40 billion of toxic assets. Spain experienced a housing boom and bust similar to what the U.S. went through. The difference with Spain is that a lot of bad Spanish home loans were made by smaller Spanish regional banks called cajas. They all held so many bad loans that the government encouraged them to merge into a bigger bank — this bank we’re hearing about now, named Bankia. But the danger in merging several small bad banks is that you can end up with a big bad bank, as is the case with Bankia.

Hill: So when the financial crisis unfolded here in the U.S., Washington spent a lot of money back-stopping banks. Is that what Spain is doing here?

Werth: Yes, in a sense, this is Spain getting around to doing what the U.S. government did earlier and what Spain had tried to avoid doing up until now. The problem is how to pay for it. By all estimates, Spain doesn’t have the kind of money it needs to do this. But, I spoke with Javier Diaz Giménez at IESE Business School in Madrid, and he says, most likely, Spain is going to need some kind of rescue from its European neighbors.

Javier Diaz Giménez: It will not be a spectacular rescue like the Greek or the Portuguese or Irish rescues. But Spain will need money from the European institutions to recapitalize its banking system.

Werth: But he thinks Spain is on the right track with Bankia.

Hill: Thanks so much Christopher.

Werth: Thanks, Adriene.

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