Spain has been suffering from the world's economic problems since 2007. Their construction industry has stalled; they have vastly over-built holiday apartments leaving investors with depreciating assets and the tourist industry which accounted for 25 percent of their GDP has taken a hit.
But until now their banks were sound. This is because the Spanish regulators forced them to keep their debts on their balance sheets rather converting it to toxic waste. Until now. For the first time we see a bank failure as the state has taken over Caja Castilla-La Mancha after efforts to choreograph its purchase by a rival lender failed.
The Bank of Spain said yesterday it has appointed administrators to run the savings bank after removing its board. As part of the rescue, the government has pledged to guarantee as much as 9 billion euros ($12 billion) of the lender’s liabilities. (Source)
The big question is: Is this a one-off or the first emerging tip of a systemic iceberg. And the reason this is important is because of Banco Santander.
Banco Santander has over the last couple of years used its healthy balance sheet, and some pull with the UK government, to acquire a large swathe of the British retail banking sector. They own:
Alliance & Leicester
Bradford and Bingley
And they also acquired the Dutch bank ABN AMRO after a hard-fought battle with Barclays. (Which now they must be wishing they'd lost!)
If Banco Santander fails all those rescues fail as well and there's no way the UK government could stand back and watch that happen.