THE SPANISH government has admitted that some Spanish banks are under pressure as a result of a new liquidity squeeze, which has meant foreign banks are refusing to lend to some of their Spanish counterparts.
The liquidity squeeze in the interbank market was officially acknowledged yesterday by Spain’s treasury secretary Carlos Ocana. However, the Spanish government denied that it was on the brink of seeking a financial rescue from the European Union.
It is understood that the liquidity problems in Europe are not affecting Irish banks, which already have a high reliance on funding from the European Central Bank (ECB) as a result of pressures in the interbank market.
In the latest development in the euro-zone debt crisis, Spain was forced to deny that it was negotiating any financial aid package.
“Spain does not need additional financing from any international institution. The rumour is false and I deny it,” Mr Ocana said.
However, he admitted the squeeze on funding at some Spanish banks was “definitely a problem”.
Spain, which is the fourth largest economy in the euro zone, needs to refinance €16.2 billion of bonds in July. It has been able to borrow on the markets, but at a rising premium.
Mr Ocana stressed that the Spanish government was implementing economic reforms. “The way to recover confidence is to take decisive and concrete measures,” he said.
The chairman of Spain’s second largest bank BBVA, Francisco Gonzalez, said the problems for Spain’s sovereign debt were hindering the borrowing abilities of the country’s companies and financial firms. “If the Spanish state has difficulty in financing itself outside Spain, the difficulties will be even greater for those in the private sector. For the majority of companies and Spanish financial firms, international capital markets are closed,” he said at a conference of business executives.
Meanwhile, national financial regulators – including the Irish regulator – may be given “emergency powers” to “prohibit or restrict” naked credit default swaps (CDS) trades under proposals being considered by the European Union in the wake of the region’s debt crisis. Such trades are highly speculative and can create volatility.
The measures would be “temporary in nature and subject to co-ordination” by the European Securities and Markets Authority, the European Commission said. The European Parliament is also scheduled to vote today on separate proposals to restrict trading in CDS instruments.
German chancellor Angela Merkel and French president Nicolas Sarkozy believe that some bets against stocks and government bonds should be banned in order to lessen market volatility. – (Additional reporting, Bloomberg)
