MNI INSIGHT: Concern Spanish Banks Short Of MREL Until 2024

By Silvia Marchetti

     MADRID(MNI) - The Bank of Spain is concerned the country's lenders might

not comply with European requirements for issuing bail-in-able liabilities

before 2024, and also fears they might face higher Pillar 2 capital requirements

from the European Central Bank, MNI understands.

     But, while Spain's banks are lagging in meeting targets for the Minimum

Requirement for own funds and Eligible Liabilities, and could come under

scrutiny during the ECB's Supervisory Review and Evaluation Process, which can

prompt calls for additional capital, the country's newly-constituted

macroprudential authority is unlikely to move aggressively to raise its

countercyclical capital buffer.

     With credit still below its trend, the buffer, currently at 0%, may not be

increased to its maximum 2.5% for as long as 20 years, officials believe,

although it is possible that a sharp eurozone slowdown might increase risks,

prompting a bigger increase in the CCyB than might otherwise be the case.

     The Bank of Spain's Macroprudential Authority Financial Stability Board,

responsible to setting the buffer, conducts a quarterly review of factors

including credit growth, house prices, the current account balance, flows into

property and funding from abroad.

     One risk, officials believe, is that global trade tensions and a sluggish

eurozone economy could trigger a sudden repricing of financial assets, at a time

when Spanish banks' profitability levels are still stuck below the cost of

capital. The authority is also awaiting a September ruling by the European Court

of Justice on whether Spanish banks prevented borrowers from benefitting from

lower interest rates under a mortgage rate index scrapped in 2013. Brokers have

estimated that banks could be liable for up to E10 billion in compensation if

the court finds against them.

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

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