The Spanish Treasury is opposed to the Minister of the Economy, Luis de Guindos, who is proposing state backing for the bad bank instrument, which would split off toxic real estate assets owned by major banks. The opposition aims to limit the reach of this instrument by leveraging already-existing corporate entities that banks use to split off toxic real estate assets and banking provisions. In other words, a new bad bank mechanism will not be created.
The Ministry of the Economy is planning a share protection plan which will rely on public aid funds. The expected volume equals nearly 20 billion euros. That said, De Guindos is meeting stiff opposition from the Treasury, which argues that Spain cannot be exposed to the risk of having to issue this kind of aid in the future given its current debt obligations. If put under this exposure, Spain would likely see its credit rating cut by major ratings agencies, an action that would further increase the costs of refinancing the Spanish economy.
After the Treasury said no to the De Guindos's plan, he had to adjust his initial plans, and now the bad bank will merely require banks to use a corporate entity to split off toxic assets and provisions raised to back said assets.
This means, in practice, that no such bad bank will exist, because the measure will hardly change current banking practices. Practically all banks already have corporate entities that they use to aggregate toxic real estate assets and the provisions they have raised since financial reform requirements were introduced nearly three months ago via Decreto 2/2012, a law that, incidentally, accelerated the sale of these assets.
