Nixing the idea of a "bad bank" as a measure of financial reform and in the wake of the Ministry of the Economy's failure to force a merger between Bankia and La Caixa, the Spanish government is now planning to ease conditions requiring financial institutions to increase deposits.
The government is attempting to introduce several changes to its original plans that would give a little breathing room to Bankia as well as other institutions that are in the middle of or beginning a merger process.
The sector should have an extra 50 billion euros in provisions according to government calculations. If the provisions come from banking profits, then the Ministry of the Economy wants banks, in certain situations, to use some of these provisions for building capital reserves.
Banks that do not merge will have from six months to a year to amass new provisions for their real estate assets. However, those deciding to begin a merger process with another institution may have to increase deposits against reserves during a two to three year time frame.
