What Is a Bank Bailout?

Special bank bailout means that in order to solve the bank liquidity problem, the Spanish government may need to apply for a bailout of about 40 billion euros from the European Union. The bank's special rescue funds will go directly to the bank's orderly reorganization fund and be guaranteed by the state. The funds are only used to meet the needs of the financial system capital and cannot be used for other purposes.

Special bank assistance

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Special bank bailout means that in order to solve the bank liquidity problem, the Spanish government may need to apply for a bailout of about 40 billion euros from the European Union. The bank's special rescue funds will go directly to the bank's orderly reorganization fund and be guaranteed by the state. The funds are only used to meet the needs of the financial system capital and cannot be used for other purposes.

Details

On September 28, 2012, La Torre and Vice President Fernando Restoy of the Bank of Spain announced the results of the stress test conducted by Oliver Wyman International Consulting on the Bank of Spain at a joint press conference. Wyman has conducted rigorous tests on 14 banks in Spain. Seven of them have sufficient funds and successfully pass the customs. The other seven need additional funds to resist risks. Wyman believes that the Spanish banking industry needs additional funding of 53.7 billion euros ($ 69 billion) in the current economic and financial situation.

La Torre said that since the banking industry has begun to restructure, the required funds are less than expected, because some of the banks' bad debts will be transferred to the established "bad debt banks". He believes that Wyman's test results will have a positive impact on the market and no longer cast doubt on the Spanish financial system.

Bank of Spain deputy governor Restoye added that the total amount of financial bailout applied by the government was lower than the 100 billion euros ($ 128.5 billion) special bailout promised by the European Union in June and lower than Wyman's forecast. Because the bank can resolve part of the funds on its own or obtain it through other non-public assistance mechanisms.

In this stress test, 7 banks including Santander Bank, Foreign Bank, Keksa Bank, Sabadell Bank, and Interconnect Bank successfully passed the stress test. These 7 banking groups account for the tested credit in the financial system. 62% of the sector. Of the 7 banks that failed the test, BFA Bangia, Catalonia, NCG, and Valencia needed the largest amount of funds, totaling 46.2 billion euros, or about 86% of the total. Restructuring has begun with the help of the Spanish government and the European Union.

On June 25, Spain s Minister of Economy and Competitiveness, De Gindos, wrote a letter to Eurogroup Chairman Juncker on behalf of the government, and formally submitted a bailout application to Eurogroup regarding the financial difficulties faced by the Spanish banking industry.

This means that the Spanish government has officially begun the process of obtaining euro group bailout funds. On June 9, the Eurogroup stated that it could provide Spain with rescue funds of up to 100 billion euros on preferential terms.

The Spanish government said that the loan term could be up to 15 years, with a grace period of 5 to 10 years, and interest could be between 3% or 4%. The bank's orderly reorganization fund will inject the rescue funds into banks with liquidity problems at 8% interest. ^[1]