Spain: Financial Sector Assessment, Preliminary Conclusions by the Staff of the International Monetary Fund

A Financial Sector Assessment Program1 (FSAP) team led by the Monetary and Capital Markets Department of the IMF visited Spain between 1-21 February 2012 and 12-25 April 2012 in order to conduct an update of the Fund’s 2006 assessment of the soundness and stability of Spain’s financial sector.

The Spanish authorities are focusing on strengthening the financial system, a crucial condition to support the broader process of economic recovery. A major and welcome restructuring of the savings bank sector is taking place, but the capacity to cope with the needed adjustments differs significantly across the system. The largest banks appear sufficiently capitalized and have strong profitability to withstand a further deterioration of economic conditions, but vulnerabilities remain in other banks that are reliant on state support, and the sector as a whole remains vulnerable to sustained disruptions in funding markets.

The assessment confirms the need to continue with and further deepen the financial sector reform strategy to address remaining vulnerabilities and build strong capital buffers in the sector. A carefully designed strategy to clean up the weak institutions quickly and adequately is essential to avoid any adverse impact on the sound banks. Furthermore, dealing effectively and comprehensively with banks’ legacy problem assets should be the priority of the next stage of the financial reform strategy.

• Primary Source

El País, 27.4.12: IMF: Spanish bank restructuring may need more public funding http://elpais.com/elpais/2012/04/27/inenglish/1335529722_274604.html

El País, 27.4.12: Government will raise VAT in 2013 in bid to comply with deficit targets http://elpais.com/elpais/2012/04/27/inenglish/1335547977_874685.html

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