The shadow consolidation of Spain's insolvent financial sector continues: El Pais reports that a brand new "cold fusion" of Caja Madrid and Bancaja will result in the largest savings bank in Spain. "The operation, which must be approved by the directors of the entities would have the approval of the Bank of Spain, which gave impetus to the recent decision by Caja Madrid to form a an SIP (Institutional Protection System) with the following "cajas": Canary Island, Rioja, Avila, Segovia and Laietana." All this process does is to dilute bad assets, as well as shareholder equity, in those places where it still exists. On the other hand, all Spain is doing is consolidating its bank system and instead of having a variety of smaller banks, it will end up with 5-10 TBTFs, whose eventual failure will have a far more adverse impact on the economy than if the country were to let the smaller entities fail when they become insolvent.
Some more from El Pais:
With this potential agreement, the integration of boxes you want the Bank of Spain is taking an important step forward. Of all existing savings institutions, 45, will end around 15. Bancaja had been relegated to fourth place following the sector ranking is possible that La Caixa, which crystallizes if the operation would be relegated to second place in the classification, is making a move to stay ahead of the sector.
We still have to hear any positive news about the ongoing liquidity scarcity within Spain's financial sector. At last check BVA had trouble accessing CP, while liquidity for secondary institutions was non-existant: most of it, as we have pointed out day after day, is now locked up with ECB overnight deposits.