Reuters: US Dollar Report: Spain to switch to direct bank recapitalisation when ESM has that capability-official

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Spain to switch to direct bank recapitalisation when ESM has that capability-official Jun 29th 2012, 10:32 BRUSSELS, June 29 | Fri Jun 29, 2012 6:32am EDT BRUSSELS, June 29 (Reuters) - The Spanish government will initially borrow money from the euro zone to recapitalise its banks, but the loan to the sovereign will be changed to direct bank recapitalisation once the ESM permanent bailout fund acquires that capability, a senior euro zone official said. The permanent bailout fund, the European Stability Mechanism (ESM), will be able to directly recapitalise banks once the European Central Bank takes on the role of a euro zone-wide bank supervisor, euro zone leaders agreed earlier on Friday. "Already 14 out of the 17 euro zone central banks have supervisory powers, so it can happen quite quickly -- by the end of the year or early in 2013," the senior euro zone source said. Once the ESM can recapitalise Spanish banks directly, it would do so, allowing the banks to reimburse the Spanish government for the recapitalisation loans that it will take now. "This will mean that the impact on Spanish public debt will be eliminated," the senior euro zone source said. Euro zone ministers have made available up to 100 billion euros to lend to Spain for thee bank recapitalisation. If Madrid were to use all that money, its debt would rise by about 10 percentage points above 90 percent of gross domestic product. Link this Share this Digg this Email Reprints

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