Actually, it’s not in Spain at all.
As Gillian Tett notes in Friday’s insight column, Spain has been in the throes of a frenzied property boom for some time now - one to put even the British to shame.
And that, unsurprisingly, has led to an explosion in the balance sheets of banks, with a corresponding boom in the Spanish retail mortgage bond securitisation (RMBS) market.
Yet even with that heavy dependence on the mortgage market - and a particularly fragile one at that - Spanish banks don’t seem to be so crisis prone.
Now part of that, by our reckoning, is surely the fact that troubled Spanish lenders have had access to easy money from the ECB. Rating agency Moody’s said earlier this week that Spanish lenders had issued €53bn of mortgage-backed bonds in Q4. Almost all of those were exchanged with the ECB in repo loan transactions - virtually none were sold on the open market.
But, as Tett says, there is something else that is striking about this Spanish picture:
Unlike UBS, say, no Spanish bank has yet lost too much, too dramatically on a subprime bet. Nor has any revealed a rotten, structured investment vehicle or two, as in the case of Germany’s IKB. Indeed, when you compare Spanish banks with their Dutch rivals, say, they appear to have been surprisingly coy about creating off-balance sheet vehicles in which to place all their piles of mortgage loans.
…several years ago a clutch of Spanish banks discretely approached the Spanish central bank and asked permission to do what other international banks were doing at the time - namely setting up networks of SIVs.
However, Madrid took a dim view of this and demanded that Spanish banks post an 8 per cent capital charge against SIV assets. That essentially killled the business stone dead by removing incentives to create these creatures.
At the time, this stance provoked predictable grumbles from Spanish financiers. After all, back then almost every other Western regulator was encouraging its banks to get their assets off the balance sheet as fast as you can say “Basel I”.
But now Madrid looks smart.
