9 June 2012
Last updated at 16:58 GMT
Spain's banks have lent billions of euros that they might never get back
Spain would need to formally ask for help, but it has so far resisted pressure to request a bailout.
Its government wants the aid to go directly to the banks.
"What we're working on at the moment is the recapitalisation of the financial entities that need it, nothing else," said Spain's Development Minister Ana Pastor.
The IMF said on Friday that a "stress test" showed that while some of Spain's financial sector was well managed, measures were needed to help those hardest hit by the property crash and recession.
"It is critical that the authorities continue to take decision action to address the weaker institutions and restore market confidence in Spanish banks," the report said.
It warned that delays would make the economic downturn worse and "damage stability more broadly".
The BBC's Tom Burridge in Madrid says it is unclear how any deal that helps the banks directly would work.
A source told the BBC that one option was a line of credit for the Spanish government, with the money coming from the European Financial Stability Facility (EFSF).
Spain is keen to avoid what is seen as the humiliation and demands for stringent cuts associated with the full-blown bailouts for Greece, Portugal and Ireland.
And because Europe's fourth-biggest economy has already announced tough financial reforms, it is likely that a deal would carry fewer conditions than previous rescue packages, our correspondent says.
'Act quickly' In an interview on Portuguese radio, European Central Bank Vice-President Vitor Constancio said: "It is expected that Spain will formulate a request for aid exclusively for banks recapitalisation.
Jean-Claude Juncker, who chairs the Eurogroup of finance ministers, said: "The solution must come quickly."
Correspondents say Spain is being urged by Brussels and Germany to act ahead of next weekend's elections in Greece, which has led to fears of a break-up of the eurozone.
Continue reading the main story
Many of them borrowed large amounts on the international markets to lend to developers and homebuyers, a riskier strategy than funding it with deposits from savings.
When the credit crunch hit and Spain's property boom collapsed, Spain's financial sector was plunged into what the IMF described as an "unprecedented" crisis.
Banks need to offload some 200,000 repossessed properties at a time when house prices have fallen by 25% on average. Some estimates have put the total amount of bad loans across the banking sector at about 180bn euros.
A downgrade of Spain's creditworthiness by rating agency Fitch earlier this week has been seen by some as adding to the urgency of shoring up Spain's finances.
European leaders have to make difficult decisions to steer the eurozone away from crisis, US President Obama said on Friday.
He said a deep new recession in Europe would have an impact on the US economy.
Greece's future in the eurozone was a matter for the Greek people, he said, but "further hardship" must be expected if the country chose to leave the euro.
Greeks will go to the polls on 17 June to try and end a political impasse that eurozone leaders say is harming Greece's ability to tackle its economic crisis.
Eurozone ministers discuss Spanish bank rescue
Spain's banks have lent billions of euros that they might never get back
Eurozone finance ministers have held a conference call to discuss possible loans to shore up Spain's banks.
The International Monetary Fund (IMF) estimates that Spain's
"vulnerable" banks need at least 40bn euros ($50bn; £32bn). But reports
say up to 100bn euros is under consideration. Spain would need to formally ask for help, but it has so far resisted pressure to request a bailout.
Its government wants the aid to go directly to the banks.
"What we're working on at the moment is the recapitalisation of the financial entities that need it, nothing else," said Spain's Development Minister Ana Pastor.
The IMF said on Friday that a "stress test" showed that while some of Spain's financial sector was well managed, measures were needed to help those hardest hit by the property crash and recession.
"It is critical that the authorities continue to take decision action to address the weaker institutions and restore market confidence in Spanish banks," the report said.
It warned that delays would make the economic downturn worse and "damage stability more broadly".
The BBC's Tom Burridge in Madrid says it is unclear how any deal that helps the banks directly would work.
A source told the BBC that one option was a line of credit for the Spanish government, with the money coming from the European Financial Stability Facility (EFSF).
Spain is keen to avoid what is seen as the humiliation and demands for stringent cuts associated with the full-blown bailouts for Greece, Portugal and Ireland.
And because Europe's fourth-biggest economy has already announced tough financial reforms, it is likely that a deal would carry fewer conditions than previous rescue packages, our correspondent says.
'Act quickly' In an interview on Portuguese radio, European Central Bank Vice-President Vitor Constancio said: "It is expected that Spain will formulate a request for aid exclusively for banks recapitalisation.
Jean-Claude Juncker, who chairs the Eurogroup of finance ministers, said: "The solution must come quickly."
Correspondents say Spain is being urged by Brussels and Germany to act ahead of next weekend's elections in Greece, which has led to fears of a break-up of the eurozone.
Continue reading the main story
“Start Quote
The IMF's estimate that Spanish banks need to raise around 40bn euros of additional capital as protection against potential future losses is already out of date and too low - or so the IMF concedes”
"If Spain feels overwhelmed by
its financial needs, it should use the instruments which have been
created for that," Jens Weidmann, the head of the German central bank,
said in an interview with a German magazine.
Bad loans
Spanish Prime Minister Mariano Rajoy has so far insisted that
any decision will come after the results of two independent audits of
the Spanish banking system, which are due out within two weeks.Continue reading the main story
Crisis jargon buster
Use the dropdown for easy-to-understand explanations of key financial terms:
EFSF
The European Financial Stability
Facility is currently a temporary fund worth up to 440bn euros set up
by the eurozone in May 2010. Following a previous bail-out of Greece,
the EFSF was originally intended to help other struggling eurozone
governments, and has since provided rescue loans to the Irish Republic
and Portugal. More recently, the eurozone agreed to broaden the EFSF's
mandate, for example by allowing it to support banks.
The audits will produce a figure of how much money, in total, is needed to prop-up Spain's banking sector.
Banks are struggling with toxic property loans. The country's
fourth-largest lender, Bankia, recently asked for a total of 23.5bn
euros (£19bn) to help deal with losses on loans that cannot be repaid.Many of them borrowed large amounts on the international markets to lend to developers and homebuyers, a riskier strategy than funding it with deposits from savings.
When the credit crunch hit and Spain's property boom collapsed, Spain's financial sector was plunged into what the IMF described as an "unprecedented" crisis.
Banks need to offload some 200,000 repossessed properties at a time when house prices have fallen by 25% on average. Some estimates have put the total amount of bad loans across the banking sector at about 180bn euros.
A downgrade of Spain's creditworthiness by rating agency Fitch earlier this week has been seen by some as adding to the urgency of shoring up Spain's finances.
European leaders have to make difficult decisions to steer the eurozone away from crisis, US President Obama said on Friday.
He said a deep new recession in Europe would have an impact on the US economy.
Greece's future in the eurozone was a matter for the Greek people, he said, but "further hardship" must be expected if the country chose to leave the euro.
Greeks will go to the polls on 17 June to try and end a political impasse that eurozone leaders say is harming Greece's ability to tackle its economic crisis.
Eurozone debt crisis bailouts |
|||
|---|---|---|---|
| Who | When | How much | Main problem |
Greece |
May 2010 and March 2012 |
110bn and 130bn euros. Private lenders also wrote off debt |
Greece borrowed large amounts for public spending. The financial crisis, combined with deep-seated problems such as tax evasion, left it with massive debts |
Republic of Ireland |
November 2010 |
85bn euros |
A property crash
plunged the "Celtic Tiger" economy into recession, saddling its banks,
which had leant big to developers and homebuyers, with huge losses |
Portugal COPY : http://www.bbc.co.uk/news/ |
May 2011 |
78bn euros |
High government spending and a weak, uncompetitive, economy led to debts it could not repay |
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