Spain's banks may need more capital if economy deteriorates

Miguel Ordonez head of Spain's central bank warned that if the economy deteriorates Spanish banks might need more capital. Spain's economy is shrinking with unemployment near 24 per cent worse than even Greece.

There has been a surge in loan defaults and the cost of borrowing has increased for the country. Some analysts think that Spain may eventually require a bailout as did Greece but the central bank chief claims there is no talk of that.

Orddonez said:"If the Spanish economy finally recovers, what has been done will be enough, but if the economy worsens more than expected, it will be necessary to continue increasing and improving capital as necessary in order to have solid entities,"

Already the economy is predicted to shrink by 1.7 per cent this year but that prediction was before the government slashed another 27 billion euros from spending. Billions more are to be cut to spending in the 17 different regions.

The crisis is a field day for large banks who are gobbling up smaller ones at a fast rate.From around 40 banks the consolidation is expected to end up with less than 12. For more see this article.