Bank of Spain tightens supervision of lenders

The Bank of Spain has decided to tighten its supervision of the banking system in the wake of a series of failures in the sector that led to the government seeking a 40-billion-euro bailout to recapitalize a number of lenders.

The central bank said in a statement posted on its website late Tuesday that the arrangement of embedded inspectors at the country’s biggest lenders would be extended to include the 16 most “relevant” banks in the banking sector. Previously only Santander and BBVA had embedded inspectors, but this was later extended to La Caixa, Bankia, Popular and Sabadell.

For the rest of the banking sector where there are no embedded inspectors, the central bank said there would be an on-site review at least every three years. “All of the major relevant loan portfolios will be inspected,” the bank said.

The announcement came after a report by the bank’s association of inspectors that said “the habitual reaction was to look the other way in cases of indications of offenses.”

In its statement, the executive committee of the Bank of Spain defended its supervision of the system and affirmed its “total and absolute collaboration” with the legal authorities in the pursuit of possible offenses in the sector.

The State Prosecution Services on Wednesday said it would ask the Bank of Spain about the inspectors’ report to “verify if any offenses” had been committed in the sector.

“If there has been any offense, I want to have access to sufficient material to pursue it,” Attorney General Eduardo Torres-Dulce said.

Shortly after taking office in July, the governor of the Bank of Spain, Luis Linde, acknowledged inadequacies in supervision during the real estate boom, the main reason that a number of lenders came unstuck after the property bubble burst.

The executive committee said the purpose of the review it has carried out was to incorporate proposals in the report presented by the bank’s inspectors in October of last year with a view to “identifying shortcomings.”