By Ben Sills
Feb 28, 2014 11:24 AM
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Photographer: Angel Navarrete/Bloomberg |
In December 2010, Bank of Spain
inspectors delivered a report to their bosses about
Caja Madrid
savings bank that was grim: The bank faced losses of almost 5
billion euros ($6.8 billion) and needed new leadership.
By the time the central bank’s top policy makers delivered
their recommendations to Caja
Madrid, they no longer mentioned
new management -- and the amount of losses had been pared by
almost 2 billion euros.
The diagnosis was crucial because Caja Madrid was the
biggest part of a nearly completed state-sponsored merger that
would create
Bankia SA (BKIA), an entity so big that troubles there
could -- and did -- cascade through the entire financial system.
The result was a 41 billion-euro bailout for Spain’s banks, a
bill that the country’s taxpayers will have to pay.
The incident, set out in previously unreported Bank of
Spain documents, is critical now because applying the lessons
from such banking disasters is at the core of one of the biggest
projects in European policy making since the euro was founded.
Mario Draghi’s
European Central Bank will take over supervision
of euro-region banks from national regulators in November this
year in a bid to avoid a rerun of a crisis that nearly destroyed
the common currency.
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Photographer: Angel Navarrete/Bloomberg |