Finland and Spain managed to reach an agreement on Tuesday on the amount of collateral which the former would receive in exchange for the participation in Eurozone's rescue package for distressed Spanish banks. Finland is the only country which asked for loan guarantees.
According to the Finnish Finance Minister Jutta Urpilainen, who held a press conference after the deal was reached, the agreement is similar to that previously made between Finland and Greece. Spain will provide a collateral of 769.92 million euros and entire sum will come from EFSF funds. Finland plans to invest it in bonds of Eurozone's five core countries.
Bank of Spain lax supervision contributed to loss of investor confidence, new Governor claims
During his speech before the parliamentary committee on Tuesday the new Bank of Spain Governor Luis Maria Linde said that the deterioration of market confidence in Spain was partly due to inadequate supervision by the central bank under former head Miguel Angel Fernandez Ordonez.
“The loss of confidence in our banking system cannot be blamed exclusively on the global economic downturn, on problems in the euro zone.. or on our own recession”, Governor Linde said, adding that the current conservative government took firmer measures to clean up the financial sector.
He also assured that Spain does not intend to maintain public banks, although it might need to provide aid for another distressed financial institution in the nearest future. Still, Linde allowed for a possibility of liquidating banks which are not viable anymore.
The Bank of Spain Governor said that Spanish GDP would fall 1.5% this year.
BoE's King: Possibility of Libor manipulation not considered in 2008
BoE Governor Mervyn King said today during a hearing before the UK Parliament's Treasury Select Committee, that he hadn't received any signals of Libor rate fixing in 2008. The Governor as well as MPC member Paul Tucker and other officials were questioned on Tuesday on the matter of the Libor scandal which originated in Barclays and has been expanding in ever-widening circles.
According to Governor King neither the BoE nor the New York Fed knew anything about attempts to manipulate the Libor, although they considered the procedure of establishing it faulty. The central banks as well as Barclays released documents from 2008, which prove that BoE officials knew about problems connected with Libor setting.
Barclays will pay around 450 million dollars to UK and US regulators in order to resolve the claims of interest rate manipulation. Several other banks are facing inquiry on the matter.
Yields fall at Spanish debt sale
During the first debt auction held by the Spain after President Mariano Rajoy announced a new package of austerity measures, the country's Treasury managed to sell 3.5 billion euros worth of 12-month and 18-month Letras, at the top of its target range.
The yield on 12-month bills was 3.918%, in comparison with 5.074% seen at the previous auction. The bid-to-cover ratio was 2.23. The yield on 18-month bills decreased to 4.242% vs 5.107%. The bid-to-cover ratio was 3.66.
The Spanish risk premium remained above 550 basis points after the auction.