THE SPANISH government yesterday unveiled plans to create a so-called “bad bank” to buy up toxic assets as part of a sweeping financial reform requested by Brussels in return for a bailout of the sector.

The new institution, similar to Nama, will buy from lenders underperforming debts that are a legacy of the country’s burst real-estate bubble and that have dragged the financial sector into crisis in recent months.

Deputy prime minister Soraya Sáenz de Santamaría said the law will complete the restructuring of the financial sector, helping credit to flow and creating jobs.

“It won’t cost the taxpayer a single euro,” she said.

The reform, the third affecting the banking sector this government has unveiled since coming to power in December 2011, was approved by decree. It is a major condition of the bailout of the banking sector that the government requested from the European Union in June.

The government of Mariano Rajoy has been working on the details of the law with the European Central Bank, the European Commission and the International Monetary Fund and its presentation was delayed after being initially scheduled for August 24th.

The new “bad bank” will be up and running by November and will operate for about 10-15 years, economy minister Luis de Guindos said. He estimated Spain’s banking sector contains about €180 billion in underperforming assets.

Other features of the reform include broadening the powers of the FROB state restructuring fund, allowing it to step in and intervene in poorly performing lenders, and even close them down.

It also reduces by €100,000 the salary cap for executives of banks that have received state help, to €500,000 per annum.

A decade-long Spanish property boom ended in 2008, since when prices have dropped by more than 20 per cent.

With Europe’s highest jobless rate at 25 per cent, more and more Spaniards are unable to pay their mortgages, leaving banks saddled with bad debt.