Tuesday

27th Jun 2017

ECB probes potential blunder on Spanish loans

  • Bankia is one of the main troubled banks in Spain, with losses of €7bn (Photo: Carlos Blanco)

The European Central Bank (ECB) has launched an inquiry into claims that it gave out cheap loans to Spanish banks based on over-rated treasury bills, an ECB spokeswoman told news outlets on Sunday (4 November).

The German weekly Welt am Sonntag the same day ran a story citing its own research, which says that banks in Spain saved up to €16.6 billion on loans secured on over-rated collateral.

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Based on the quality of the collateral, the ECB requires banks to pay more or less on the loans they are receiving.

In the case of the Spanish treasury bills, the ECB rated the loan guarantees as "low A," even though they should have been labelled B, in line with ratings given by major agencies such as Moody's or Standard &P oor's.

The ECB puts its trust a lesser-known rating agency, DBRS, which still rates the Spanish bills as A class, Welt am Sonntag says.

The paper also noted that Irish treasury bills were correctly classified as B-rated, meaning that Irish banks had to pay more for their ECB loans than Spanish banks did.

"In Ireland forbidden, in Spain allowed," Welt am Sonntag's headline notes.

"The ECB is investigating the matter," the ECB spokeswoman said.

If proven correct, the blunder could harm ECB credibility at a time when EU ministers and the European Parliament are negotiating details of granting the bank an over-arching supervision role over the eurozone's 6,000 banks.

The German central bank - which opposed the loosening of ECB loan conditions, as well as the upcoming bond-buying scheme designed to help the Spanish government lower its borrowing costs - has repeatedly warned that the ECB is pooling too much risk on its balance sheets.

Analysis

Spain's bailout dilemma: not if, but when and how

Markets rallied on Tuesday when two German lawmakers suggested Berlin is warming to the idea of a Spanish bailout. But the wait-and-see game in Madrid is likely to take a few weeks longer.

Germany to help Spain with cheap loans

Germany's state-owned development bank is to provide small Spanish businesses with cheap loans to boost employment, amid similar plans for Greece and Portugal.

EU approves rescue of Italian banks

The European Commission gave the green light to a €17-billion plan by the Italian government to save Banca Popolare di Vicenza and Veneto Banca.

Row between EU ministers halts e-book tax rate

A bill to reduce VAT rates on e-books and e-publications has become the latest victim of a row between the Czech Republic and its partners over its own plan to collect VAT.

Focus

EU and China move to fill US void

At a summit in Brussels, EU and Chinese leaders will attempt to deepen ties on trade and climate as US president Trump plans to pull out of the Paris climate deal.

Italy reaches EU deal on failing bank

After months of negotiations, the European Commission and Italy agreed on the terms of rescue for Monte dei Paschi di Siena bank, including job cuts, salary caps and private sector involvement in the bailout.

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