Bank of Spain downplays deposit run concerns

Supervisor puts run at only 55 billion euros over past year despite far higher ECB figure

With fears that a massive run on deposits could undermine the banking system, the Bank of Spain on Wednesday issued a statement attempting to cast light on the figures and reassure investors that the banks’ funding base has not been unduly disrupted.

The central bank said that between July of last year and July of this year, Spanish households and companies had withdrawn 85 billion euros in deposits from local banks. However, of that total, some 30 billion euros were swapped for bank bills and, therefore, did not involve any reduction in bank liquidity.

Spanish banks see biggest fall in lending in the past 50 years

M. J. / Í. D. B.

Bank lending to households and companies in Spain dropped by the most in 50 years in July as the domestic economy slipped back into recession and the euro crisis restricted access to funding.

According to figures released Wednesday by the Bank of Spain, outstanding loans to individuals and companies in the month dropped by over 90 billion euros, or 5.2 percent, from a year earlier, to 1.716 trillion euros. That was the biggest drop since the central bank began to compile the current series in 1962. In July alone, lending dropped by 26.600 billion euros, also the biggest fall in 50 years.

At the same time, as the government’s borrowing needs increased due to the public deficit, bank lending to public administrations in July jumped by an annual 27 percent to a record 106.263 billion euros.

Outstanding loans to families and households are now at the levels seen in 2007, while the volume of loans for consumer durables is at the level of 2002.

New loans to households in the past 12 months amounted to 66 billion euros, down 25 percent from a year earlier, 50 percent off the levels seen two years ago and 75 percent less than maximum levels. New loans to companies are about half of those seen three years ago.

Outstanding loans to the real estate sector, which has been in a slump since the start of 2008, stood at 286.942 billion euros, down 38 billion from a year earlier.

European Central Bank (ECB) figures showed that over the same period Spanish lenders saw a fall in deposits of 232 billion euros. However, the Bank of Spain said these figures do not apply strictly to Spanish banks but what the ECB defines as monetary financial institutions (MFIs). These include “central banks, resident credit institutions and other resident financial institutions whose business is to receive deposits and/or close substitutes for deposits from entities other than MFIs.”

The ECB figures also do not apply only to Spanish households and companies, but also include municipalities, regions, residents outside of Spain, insurance companies, and pension and investment funds. The Bank of Spain said of the total figure supplied by the ECB, 142 billion euros, should be attributed to the “rest of non-MFI financial institutions,” and, therefore, do not entail “any contraction” in the liquidity of the banks.

In turn, the bank said of these 142 billion euros, about 80 billion is accounted for by deposits of securitization funds. “This figure largely reflects the early amortization of securitized bonds held by the banks that they themselves issued,” the central bank said. The reason for the early amortization is that these bonds no longer possess the characteristics that would allow them to be used as collateral in funding operations by the banks.

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