European Central Bank (ECB) could topple Spain’s financial sector

Posted August 26, 2008

"There’s a bombshell being delivered here - the European Central Bank is about to stop bailing out eurozone commercial banks. And that could mean another big lender going ‘bust’." — David Stevenson

Blogger’s note: Just like in the U.S. and UK, the European Union’s state bank has been extending easy credit to prevent "temporary" illiquidity in assets from causing a Bear Stearns-style run on one of the eurozone’s big banks. The only problem with this situation is that, according to EU rules, it has to end. And with private lending sources still ignoring the banks’ pleas for short-term credit, some financial institutions may end up crashing and burning.

Which banks will topple first? David Stevenson of the UK’s MoneyWeek says the Spanish financial sector is in the worst trouble and could collapse any day now without the support of the European Central Bank holding it up. Read on below to learn why Spain’s banks are in for a bad time.

by David Stevenson

Baltimore and London — (TFN): Sometimes it’s the most innocuous-looking headlines that spell the most trouble.

With most papers leading on “here comes the recession”-type stories, it would be very easy to overlook the report on page five of yesterday’s FT that the “ECB is to tackle abuse of liquidity aid”. And no wonder. The story sounds either a) very technical or b) something about the financial equivalent of binge drinking.

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But there’s a bombshell being delivered here - the European Central Bank is about to stop bailing out eurozone commercial banks. And that could mean another big lender going ‘bust’. Time to reach for your tin hat again… Read on to learn more.

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