Spain: banks well capitalized despite failing test

DANIEL WOOLLS - Associated Press
AP
The Governor of the Bank of Spain  Miguel Fernandez Ordonez gestures during a news conference in Madrid Friday July 15, 2011. Spain's central bank says the European bank stress tests results show no Spanish lender needs to raise more capital, even though five failed the EU test. Bank of Spain Governor Fernandez Ordonez said Friday this is because the criteria used by the European Banking Authority do not take into account provisions that Spanish banks are mandated to set aside for hard times. (AP Photo/Paul White)
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The Governor of the Bank of Spain Miguel Fernandez Ordonez gestures during a news conference in Madrid Friday July 15, 2011. Spain's central bank says the European bank stress tests results show no Spanish lender needs to raise more capital, even though five failed the EU test. Bank of Spain Governor Fernandez Ordonez said Friday this is because the criteria used by the European Banking Authority do not take into account provisions that Spanish banks are mandated to set aside for hard times. (AP Photo/Paul White)

MADRID (AP) — Spain downplayed the fact that five Spanish lenders failed the European stress tests, saying Friday the result was due to EU criteria that ignored provisions which the country's banks use as a cushion for hard times.

Bank of Spain Governor Miguel Angel Fernandez Ordonez said the results showed no Spanish bank needs to raise additional capital as a result of the tests.

"I refuse to accept that the five failed the test," the governor said.

The four savings banks and one traditional commercial bank that did not make the cut failed because the European Banking Authority applied a one-size-fits-all criterion that ignores certain Spanish capital buffers.

Finance Minister Elena Salgado made a similar assessment and said Spanish banking had shown "excellent results."

"The real question is do Spanish entities need more capital, and the answer is no," said Salgado.

Fernandez Ordonez said he had pressed the EBA to take those special capital provisions into account but it had decided not to and instead establish a single criterion for the tests.

He told a news conference that Spanish banks were ordered in recent years to set aside funds precisely so they could cope with hypothetical crises of the type represented in the stress tests, and the fact that they had these funds meant they could manage in such situations.

The governor said that if the so-called general provisions had been included, the five banks would have passed the EBA's test, adding that this is what analysts will be looking at.

Fernandez Ordonez also said Spain had been much more up front about its banking system than other countries, noting that 25 Spanish lenders — which represent 95 percent of the sector — took part in these tests, compared to four or even fewer in other countries.

"The Bank of Spain has opted for transparency," he said. "If we had presented just four banks, like most countries did, we would have had no failures."

He praised new regulations introduced in March of this year in Spain that were already prompting many Spanish lenders to raise their capital levels and thus bolster their solvency, under the threat of partial nationalization.

The five banks that failed were Catalunya Caixa, Caja de Ahorros de Mediterraneo, Banco Pastor, Unnim and Group Caja3. Seven others barely scraped by.

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Ciaran Giles and Harold Heckle contributed to this report.