EU gives green light for Spanish `bad bank'

BRUSSELS: The European Commission and the European Central Bank said in a joint statement Friday that a deal has been struck with Spain on key aspects of a future "bad bank" that will take on other Spanish lenders' toxic property assets, noting that that entity will be up and running Dec 1.

The statement said a delegation of experts who just returned from Madrid "reached agreement with the Spanish authorities on important aspects of the design and functioning of the future Asset Management Company, including on its overall size and governance".

It noted that the delegation of the European Commission, the European Central Bank and the European Stability Mechanism undertook from Oct 15-26 the first review mission of the financial-assistance programme for Spain.

According to Brussels, the bad bank will be a "cornerstone" of that programme, which is aimed at guaranteeing the stability of Spain's financial sector.

The International Monetary Fund said in a separate statement that "key design features and the general legal framework of the AMC have now been defined", but it noted that "strong efforts" must be made to have the bad bank fully operational by the end of November.

The IMF stressed the importance of ensuring the "right incentive structures", especially to guarantee the independence of the new entity and the effective management of the transferred assets.

The creation of the bad bank was a key element of a memorandum of understanding that Spanish authorities reached this summer with their European partners and which outlined the conditions for a loan of up to 100 billion euros ($129 billion) to recapitalize the Iberian nation's struggling financial institutions.

That bad bank could house between 85 billion euros and 90 billion euros of soured real-estate assets.

Spain's banks became saddled with too many non-performing loans amid the collapse of a long-building real-estate bubble. The financial crisis has had a devastating effect on Spain's overall economy, in recession for the second time in four years.

(c) IANS