Spanish Property News Review 23rd September 2008

This week's news is largely concerned with the implications of Europe's banks in the wake of Lehman Brothers joining the list of banking casualties.

If you have money tied up in a Spanish bank, there are words of comfort and concern here: "Although Spain is home to two of Europe's strongest banks in Santander and BBVA, there are plenty of smaller groups that could go to the wall .."

Certainly Santander seems to be doing quite well at the moment - thanks in part to the risk-averse measures put in place by the Bank of Spain. Santander are on a buying spree , snapping up ailing banks across Europe. However, it's the smaller cajas, or building societies, which are most exposed to bad debt now.

Back in 1994 when Spain faced a similar banking crisis (it's current tough approach to risk mitigation is a direct consequence of the 1994 crisis), a rescue plan was put in place for Banesto - at the time, Spain's third largest bank.

There's an insurance fund which banks contribute to and can draw on in times of trouble (assuming not all banks are in trouble at the same time). There's a deposit protection fund in Spain and another within Europe although it's unclear just how far these funds would stretch if several banks needed bailing out all at once.

Personally, I doubt that we'll see a collapse of the banking system in Europe, but it is going to be a rocky road until confidence returns to the property sector and credit flows a little more freely again.

Today's news article about Real Estate Investment Trusts may be just what's needed to get some money invested back into the housing sector - and into the rest of the Spanish economy.

In years to come, I imagine that the Spanish government will look back at the lessons learned in 1994 and 2008 and take steps to further insulate Spain's banks from the increasingly international impact of the risks associated with taking on bad debt.

Martin Dell, Kyero.com

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