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The government is trying to head
off a collapse of the bank, which could threaten the Spanish banking industry
and reverberate through the financial centers of Europe and beyond. The fear is
that it will not have the money to save its banks, and their 1 trillion euros,
or $1.25 trillion, in deposits, and will need a rescue by the rest of Europe —
even as Brussels and Frankfurt are struggling to resolve Greece’s debt
debacle.
Bankia’s announcement came as
Standard & Poor’s, the credit ratings agency, downgraded Bankia and two
other banks, Banco Popular and
Bankinter, to “junk” status and lowered the ratings of
two other Spanish banks also staggered by mounting bad loans. A junk rating
could make it even harder for Bankia to borrow its way out of trouble.
The rising fear now is that the
recent steady trickle of deposits from Spain’s banks, which are suffering from
the bursting of Spain’s real estate bubble, to institutions outside the country
could eventually turn into the sort of bank run that almost brought the
financial world to its knees after the collapse of Lehman Brothers in 2008.
Spain’s debt crisis is also
playing out on another front. As its banks shudder, heavily indebted regional
governments are also running out of money. On Friday, the government of the
Catalonia region warned that it might no longer be able to finance its debts and
called on the central government for help. While other regions have also sounded
budget alarms, Catalonia is the biggest so far; it represents nearly one-fifth
of Spain’s economy.
The central government, facing its
own mounting debt, may soon be in no position to provide help to either the
banks or the regions. And with an economy in recession and unemployment at the
highest level in the euro zone, Madrid is falling further behind in meeting the
deficit-reduction targets it has agreed to with the European Union.
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