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Are Spanish banks been bailed out?

Escrito el 29 enero 2008 por Juan Toro en Financial Markets

This question is hanging around in the media. Today the UK Daily Telegraph addresses the issue in article that I attach. According to the newspaper some Spanish banks would have followed the path of Northern Rock if it had not been by the very active lending role played by the European Central Bank in the last quarter of the year. Spanish banks have been issuing record volumes of mortgage backed securities during the last quarter of the year. According to the article, Spanish banks have not been able to place these issues within an open market much affected by the credit squeeze and have resorted in the ECB discount window. Repo operations using these bonds as collateral have provided Spanish banks with liquidity. Most probably this liquidity would have not be found in the open market were asset backed securities have been much denostated.

This practice has been considered by many as a disguised rescue operation. Whether this is the case will be revealed when these short term loans (by the ECB) have to be rolled over.

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