- This is the second paper in a series on the Spanish economy. The first paper is The Spanish recession.
- Spanish banks have suffered relatively small losses during the financial crisis because they invested very little in American sub-prime assets. But their exposures to the domestic housing market and Latin America pose a risk.
- Spanish banks generally hold a better quality of assets than their European counterparts. Thus their expected losses are smaller, and with their larger reserves they are in a better position to sustain any further losses.
We don’t expect their balance sheets to deteriorate to an extent that would need much recapitalisation. We therefore anticipate the total amount of recapitalisation for the sector to be small.
Banking sector asset risks
Spanish leverage in the private sector has ballooned in recent years. Spanish banks have acquired more assets and increased their liabilities in the process. There is a potential risk of rising non-payments of loans, which could amount to significant losses for the banks. In this section we briefly explain the major risks that the Spanish financial sector is facing domestically and abroad.
