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Bank of Spain downplays deposit run concerns

September 20, 2012 El Pais
With fears that a massive run on deposits could undermine the banking system, the Bank of Spain on Wednesday issued a statement attempting to cast light on the figures and reassure investors that the banks’ funding base has not been unduly disrupted.

The central bank said that between July of last year and July of this year, Spanish households and companies had withdrawn 85 billion euros in deposits from local banks. However, of that total, some 30 billion euros were swapped for bank bills and, therefore, did not involve any reduction in bank liquidity.

European Central Bank (ECB) figures showed that over the same period Spanish lenders saw a fall in deposits of 232 billion euros. However, the Bank of Spain said these figures do not apply strictly to Spanish banks but what the ECB defines as monetary financial institutions (MFIs). These include “central banks, resident credit institutions and other resident financial institutions whose business is to receive deposits and/or close substitutes for deposits from entities other than MFIs.”

The ECB figures also do not apply only to Spanish households and companies, but also include municipalities, regions, residents outside of Spain, insurance companies, and pension and investment funds. The Bank of Spain said of the total figure supplied by the ECB, 142 billion euros, should be attributed to the “rest of non-MFI financial institutions,” and, therefore, do not entail “any contraction” in the liquidity of the banks.

In turn, the bank said of these 142 billion euros, about 80 billion is accounted for by deposits of securitization funds. “This figure largely reflects the early amortization of securitized bonds held by the banks that they themselves issued,” the central bank said. The reason for the early amortization is that these bonds no longer possess the characteristics that would allow them to be used as collateral in funding operations by the banks.