From: Athinarayanan Sanjeevraja
Date: May 30, 2012
RE: Spain Banking Crises
Suggestion: Good Morning Mr. Governor. Spanish banking system continue to suffer from the
sovereign debt crises. The job is an onerous but it is not impossible. Spain
government must act in recital with regulators and central banks to minimize
the risk of further shocks of financial systems so that funding markets
stablise, equity and credit markets return to health. In Spain, business demand
for credit has fallen amid slow growth. The supply of credit has not been
severely constrained. The first step should be separate the banks to derisk and
deleverage towards creating sound business models for the future. The second
step should be banks should not reduce lending in the face of funding
constraints. It would be significantly damage Spain’s ability to escape severe recession.
Every
country was enacting different model in order to provide effective relief for
its private and state owned banks but most of the models are ineffectual. For
instance, UK applied State Guarantee Scheme. UK banks are still holding a
significant share of risk because the bank business model is not sound. This
model only limited support for funding and liquidity. Ireland applied for Bank
Asset Purchase programme. Its size is very large compare to Ireland economic
resources which is small. It is ver4y costly model. Germany applied both SPV
and holding structure model. It is my judgment that holding structure model was
for more favourable for state owned banks than SPV model which seems to meet
the needs of the disposing of private
banks toxic assets despite have solid business model. The holding structure
model offers investors clearness about the remaining part of the core bank and
support the banking restructure. This will allow the separation of assets from
toxic. The legal and regulatory framework should be put in place to separate
clear assets from toxic assets. Holding structure model doesn’t need any
judiciary capital requirements, mark to market valuation and consolidation with
the core bank.
I
recently checked Spanish property websites, there are millions empty houses in
Spain. Most of them either Bank owned or owned by developers who can’t pay back
the money the banks lent them. That is massive impairment to Spanish banking
balance sheets. Recently Spain Prime Minister announced that injecting the
government debt bond into Bankia’s account. The Bank could then turn to the ECB
and use those bonds as collateral to receive cash for the recapitalisation.
This technique will prove to international investors that the Spain is having
difficulties raising money on the international debt markets and make them even
more reluctant to buy Spanish debt.
I
would like to recommend Spanish government would apply holding structure model
in which Spanish banks can park their total toxic or also non-strategic assets
outside the IFRS and banking regulation. No losses are covered by the
government and the owners of the banks are directly liable future losses and
not the core bank.
I
firmly believe in EU federalism. EU project don’t default. EU intends to keep
it that way. Eurobonds certainly help. It can be introduced for the refinancing
of any debt a country in the eurozone has over the 60 percent of GDP limit.
Thank
you very much for letting me states my opinion Mr. Governor.
I
am Athinarayanan Sanjeevraja with great respect of you Mr. Governor.
Comments
Post a Comment