The Truth About the Spanish Banking System That 99% of Analysts Fail to Grasp

Phoenix Capital Research's picture


Spain is a catastrophe on such a level that few analysts even grasp it.


Indeed, to fully understand just why Spain is such a catastrophe, we need to understand Spain in the context of both the EU and the global financial system.


The headline economic data points for Spain are the following:


  • Spain’s economy (roughly €1 trillion) is the fourth largest in Europe and the 12th largest in the world.
  • Spain sports an official Debt to GDP of 68% and a Fiscal Deficit between 5.3-5.8% (as we’ll soon find out the official number)
  • Spain’s unemployment is currently 24%: the highest in the industrialized world.
  • Unemployment for Spanish youth is 50%+: on par with that of Greece


On the surface, Spain’s debt load and deficits aren’t too bad. So we have to ask ourselves, “Why is unemployment so high and why are Spanish ten year bills approaching the dreaded 7%?” (the level at which Greece and Portugal began requesting bailouts).


The answer to these questions lies within the dirty details of Spain’s economic “boom” of the 2000s as well as its banking system.


For starters, the Spanish economic boom was a housing bubble fueled by Spain lowering its interest rates in order to enter the EU, not organic economic growth.


Moreover, Spain’s wasn’t just any old housing bubble; it was a mountain of a property bubble (blue line below) that made the US’s (gray line below) look like a small hill in comparison.



In the US during the boom years, it was common to hear of people quitting their day jobs to go into real estate. In Spain the boom was so dramatic that students actually dropped out of school to work in the real estate sector (hence the sky high unemployment rates for Spanish youth).


Spanish students weren’t the only ones going into real estate. Between 2000 and 2008, the Spanish population grew from 40 million to 45 million (a whopping 12%) as immigrants flocked to the country to get in on the boom. In fact, from 1999 to 2007, the Spanish economy accounted for more than ONE THIRD of all employment growth in the EU.


This is Spain, with a population of just 46 million, accounting for OVER ONE THIRD of the employment growth for a region of 490 million people.


This, in of itself, set Spain up for a housing bust/ banking Crisis worse than that which the US faced/continues to face. Indeed, even the headline banking data points for Spain are staggeringly bad:


  • Spanish banks just drew €227 billion from the ECB in March: up almost 50% from its February borrowings
  • Spanish banks account for 29% of total borrowings from the ECB
  • Yields on Spanish ten years are approaching 7%: the tipping point at which Greece and other nations have requested bailouts


As bad as these numbers are, they greatly underestimate just how ugly Spain’s banking system is. The reason for this is due to the structure of the Spanish banking industry.


Spain’s banking system is split into two tiers: the large banks (Santander, BBVA) and the smaller, more territorial cajas.


The caja system dates back to the 19th century. Cajas at that time were meant to be almost akin to village or rural financial centers. As a result of this, the Spanish country is virtually saturated with them: there is approximately one caja branch for every 1,900 people in Spain. In comparison there is one bank branch for every 3,130 people in the US and one bank branch for every 6,200 people in the UK.


Now comes the bad part…


Until recently, the caja banking system was virtually unregulated. Yes, you read that correctly, until about 2010-2011 there were next no regulations for these banks (which account for 50% of all Spanish deposits). They didn’t have to reveal their loan to value ratios, the quality of collateral they took for making loans… or anything for that matter.


As one would expect, during the Spanish property boom, the cajas went nuts lending to property developers. They also found a second rapidly growing group of borrowers in the form of Spanish young adults who took advantage of new low interest rates to start buying property (prior to the housing boom, traditionally Spanish young adults lived with their parents until marriage).


In simple terms, from 2000 to 2007, the cajas were essentially an unregulated banking system that leant out money to anyone who wanted to build or buy property in Spain.


Things only got worse after the Spanish property bubble peaked in 2007. At a time when the larger Spanish banks such as Santander and BBVA read the writing on the wall and began slowing the pace of their mortgage lending, the cajas went “all in” on the housing market, offering loans to pretty much anyone with a pulse.


To give you an idea of how out of control things got in Spain, consider that in 1998, Spanish Mortgage Debt to GDP ratio was just 23% or so. By 2009 it had more than tripled to nearly 70% of GDP. By way of contrast, over the same time period, the US Mortgage Debt to GDP ratio rose from 50% to 90%. Like I wrote before, Spain’s property bubble dwarfed the US’s in relative terms.


The cajas went so crazy lending money post-2007 that by 2009 they owned 56% of all Spanish mortgages. Put another way, over HALF of the Spanish housing bubble was funded by an unregulated banking system that was lending to anyone with a pulse who could sign a contract.


Indeed, these banks became so garbage laden that a full 20% of their assets were comprised of loan payments being made by property developers. Mind, you, I’m not referring to the loans themselves (the mortgages); I’m referring to loan payments: the money developers were sending in to the banks.


To try and put this into perspective, imagine if Bank of America suddenly announced that 20% of its “assets” were payments being sent in by borrowers to cover mortgage debts. Not Treasuries, not mortgages, not loans… but payments being sent in to the bank on loans and mortgages.


This is the REAL problem with Spain’s banking system. It’s saturated with subprime and sub-subprime loans that were made during one of the biggest housing bubbles in the last 30 years.


Indeed, to give you an idea of how bad things are with the cajas, consider that in February 2011 the Spanish Government implemented legislation demanding all Spanish banks have equity equal to 8% of their “risk-weighted assets.” Those banks that failed to meet this requirement had to either merge with larger banks or face partial nationalization.


The deadline for meeting this capital request was September 2011. Between February 2011 and September 2011, the number of cajas has in Spain has dropped from 45 to 17.


Put another way, over 60% of cajas could not meet the capital requirements of having equity equal to just 8% of their risk-weighted assets. As a result, 28 toxic caja balance sheets have been merged with other (likely equally troubled) banks or have been shifted onto the public’s balance sheet via partial nationalization.


On that note, I fully believe the EU in its current form is in its final chapters. Whether it’s through Spain imploding or Germany ultimately pulling out of the Euro, we’ve now reached the point of no return: the problems facing the EU (Spain and Italy) are too large to be bailed out. There simply aren’t any funds or entities large enough to handle these issues.


So if you’re not already taking steps to prepare for the coming collapse, you need to do so now. I recently published a report showing investors how to prepare for this. It’s called How to Play the Collapse of the European Banking System and it explains exactly how the coming Crisis will unfold as well as which investment (both direct and backdoor) you can make to profit from it.


This report is 100% FREE. You can pick up a copy today at:


Good Investing!


Graham Summers


PS. We also feature numerous other reports ALL devoted to helping you protect yourself, your portfolio, and your loved ones from the Second Round of the Great Crisis. Whether it’s a US Debt Default, runaway inflation, or even food shortages and bank holidays, our reports cover how to get through these situations safely and profitably.


And ALL of this is available for FREE under the OUR FREE REPORTS tab at:










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hairball48's picture

Well agree on it "won't be pretty in America"

hairball48's picture

 "...but if there's one thing that Europeans are good at is rebuild and come out stronger than before. It's what Europeans have been doing for centuries,..."

Huh? Not this time. for starters, there will be no Marshall Plan for Europe like after WWII. The entire planet is headed for a giant fiat currency collapse. Nobody will escape, most especially those of us ordinary folks here in the USA. The "elites", the so-called "1%ers", they always get by...and they will escape this time....those who aren't lynched by the certain to come mobs of citizens whom they fucked over.

It ain't if, it's when. I don't know what the time line is, but the crackup boom is coming. I'm betting my life on it in a small way.

Become self sufficient; be your own central bank. Buy gold, silver, and bullets bitchez. That's your  best bet and only hope.

the tower's picture

This is exactly the difference between Europe and the USA: Europeans won't sit behind the door with a gun waiting for TSTHTF.

Europe rose from the ashes many times.

For America this will be the first time. And looking at how America fell apart at 9/11 it will not be pretty.

Fuh Querada's picture

Talking of the top 1% of analysts, where's Rob Brsucka ?  He seem to have f***ed off for the interim.

Walt D.'s picture


  • Spain’s unemployment is currently 24%: the highest in the industrialized world.
  • Unemployment for Spanish youth is 50%+: on par with that of Greece

If you don't look at phony baloney BLS numbers, the US is just as bad, according to ShadowStats. 

"Unemployment for Spanish youth is 50%+: on par with that of Greece" - also on par with US college graduates.


Spain also wasted a boat load of money on alternative energy projects (mostly windfarms). (Didn't WilliamBanzai7 have a cartoon of Gore Quixote on a horse tilting at a windfarm?)

the tower's picture

Europe will be fine.

American vultures like Graham Summers - and their European Anglo-Saxon counterparts - might be circling what they hope will be a carcass soon, but if there's one thing that Europeans are good at is rebuild and come out stronger than before. It's what Europeans have been doing for centuries, so if you want to learn from history, there's a lesson for you.

Europe's youth is highly educated, civilized, and enjoys life's little pleasures, just like their parents. That's because there's still something called culture in Europe.

Yes there will be a crash, but Europe will be the real Phoenix, not Phoenix Capital Research.

Treason Season's picture

Rebuild this.


An auto-da-fé  was the ritual of public penance of condemned heretics and apostates that took place when church officials had wily-nily decided their punishment, followed by the execution by the civil authorities of the sentences imposed. Both auto de fe in medieval Spanish and auto da fé in Portuguese mean "act of faith".

As execution by burning was more memorable than the penance which preceded it, in popular use the term came to mean the burning rather than the penance.

bugs_'s picture

the spanish students that quit and participated in their housing ponzi may have learned some important things that they would never have learned at school.

there is a silver lining there

tony bonn's picture

"I fully believe the EU in its current form is in its final chapters."

i can only hope so and that its dissolution takes down a potload of banksters with it.

smb12321's picture

But that's the kicker.  The "banksters" are - on the whole - a well-educated, politically connected, creative group that can drift from one industry to another.  Like the US, it took a combination of government pressure (everyone MUST own a home regardless of ability to pay) along with willing participants in the scam.  Citizens will be hurt but the silver lining is that most have had time to withdraw funds from banks. 

Meatier Shower's picture

Most have had time to withdraw funds from the banks, but very, very few have done so.

max2205's picture

Kick can, ramp. Rinse, repeat

dizzyfingers's picture


The following is a transcript of a recent speech given by Professor William Black on an Economics Panel regarding the fradulent roots of our current crisis and the urgent need for criminal prosecutions among major US banks.

In the Savings and Loans crisis, which was 1/70th the size of this crisis, our agency made over 10,000 criminal referrals that resulted in the conviction on felony grounds of over 1,000 elites in what were designated as major cases. And to pick up on what’s just been said, this is not just some sidelight to economics, this is why we have recurrent intensifying crises, is these epidemics of fraud from the C-Street—from the CEOs and CFOs.

In the Savings and Loans crisis, the inevitable National Commission said that fraud was invariably present at the typical large failure. In the Enron era, always frauds from the very top of the organization, and in this crisis the frauds came from the very top of the organization again. But what’s different in this crisis? In this crisis, the same agency that I worked with that made over 10,000 criminal referrals in a tinier crisis made zero criminal referrals. They got rid of the entire function. And so there are zero convictions of anybody in the elite ranks of Wall Street. And if they can defraud us with impunity they will cause crisis after crisis and they will produce maximum inequality.

The group that has the audacity to refer to itself as the productive class is the largest destroyer of lives, jobs, and of wealth of any group ever produced in this world. They wiped out six million existing jobs and five to six million jobs that would’ve been created. As you’ve heard, they’ve left 26 million Americans wanting full-time work with no ability to find that work. If you look at just losses in the household sector, it is $11 trillion. A trillion is a thousand billion. And then they have the nerve to say they are the productive class; and, not this journalist, but what we get as faux journalism today, repeats this endlessly as if it were a fact—that they create jobs. They destroy jobs. They are mass destroyers of jobs.

I told you I would bring you a message of hope. I will disagree a little bit with a fact pattern about the Reagan administration and re-regulation on Savings and Loans, because that’s where I was. I will tell you this: everyone opposed our re-regulation of the industry. The big deregulation bill, the equivalent of the repeal of Glass-Steagall and such, occurred in 1982 and became effective in 1983. By November 1983, we were already re-regulating the Savings and Loan industry. And we were called re-regulators because that was the greatest swear word the Reagan administration believed existed—to call people re-regulators. But this was not partisan—a majority of the members of the House at the time it was controlled by Democrats co-sponsored a resolution saying do not go forward with re-regulation.

Five US Senators who became known as the Keating 5 because the most infamous fraud of that era got them together—and who, by the way, did Charles Keating and that fraud use to recruit the Keating 5? Brought him as a lobbyist to walk the halls of the Senate—a guy named Alan Greenspan. Who also put in writing Lincoln Savings posed no foreseeable risk of loss. It was only the most expensive failure—a 3000 position error. And after he got everything wrong in the most important issues he had ever dealt with, after that fact we named him Chairman of the Federal Reserve because we promote incompetence if it helps the 1%.

The Reagan administration was so outraged that we were closing insolvent Savings and Loans with great political support that the Office of Management and Budget threatened to file a criminal referral against the head of our agency on the grounds that he was closing too many insolvent banks. Do we have that problem recently? You see Geithner out trying to close the big powerful banks? And that Reagan administration tried to appoint two members—there were only three members running the place—so this would’ve given control to Charles Keating, the most notorious fraudster in the Savings and Loans crisis, who selected two individuals to run the agency that would then not regulate him. One of them got knocked out on ambiguous political grounds and the other I had to blow the whistle to get him to resign in disgrace, but of course they didn’t prosecute him.

We can prosecute these frauds. The Federal Housing Finance Administration has just filed complaints saying 17 of the largest banks in America committed massive fraud—endemic fraud—and that there’s a paper trail proving that they did so. So where is the Justice department? Why is it not indicting these clear frauds?

When you are told no one could see this crisis coming, ask them about the subprime crisis of 1990 to 1991. It’s a trick question. As all good things do in the world of fraud, this one started in Orange County, where you had significant people making liars loans. Now, remember, it is the lenders who put the lies in liars loans, not the borrowers. We know this empirically. And we stopped that—because it was insane—as regulators. And guess what happened? The leading folks making liars loans gave up their federal charter, gave up federal deposit insurance, and became a mortgage bank for the sole purpose of escaping regulation. And they changed their name. Some of you will recognize this name—to Ameriquest. Ameriquest was the leading predatory lender that in addition to making liars loans every day of the week targeted minorities to destroy that wealth you just heard about. They targeted Latinos, they targeted Blacks, and they were caught. They were caught three times doing this and the justice department refused to prosecute. Instead they settled for four hundred million dollars and guess what happened to the head of Ameriquest? Did he: a) resign in disgrace, b) was he indicted, or c) did we make him our ambassador to the Netherlands? Got it and won. How hard is this to figure out? Why do you think we made him our ambassador to the Netherlands? Because he was the leading political contributor to president of the United States of America. And that’s bad but what comes next is far worse. Remember, this is the most notorious fraud in the nation. It targets minorities. Everybody knows it does so. Two entities rushed to acquire these personnel and this business and their names—Citicorp and Washington Mutual—who become two of the most notorious frauds in all of this.

So timewise I’ll stop here but the case is, when we prosecuted, we had a ninety-percent conviction rate when they had the best criminal defense lawyers in the world and they spent money like water to protect the CEO from going to prison. So when they tell you no one can stop this, it is utter nonsense. I’ll leave you with these statistics: the FBI warned of this in September 2004. In open testimony, it warned expressly that there was an epidemic—I’m quoting—an “epidemic of mortgage fraud” and it predicted it would cause a financial crisis. If that’s not enough, the industry own anti-fraud experts in 2006, in writing, went to every mortgage banker in America and virtually every other lender and said three things: 1) stated income loans are an open invitation to fraudsters, 2) the incidence of fraud in such loans is 90%, and 3) these loans deserve the phrase—used by the industry behind closed doors—they are liars loans because they are pervasively fraudulent. How big did they get? Well, what did the industry do after it was warned? Did it stop making these loans? No! It massively increased the amount of these loans such that by 2006, one out of every three home loans in America was a liars loan. And that’s why we have a crisis and it came from the very top of these organizations, and it went through—as the FHFA said in its complaint—the largest banks in the world were endemically fraudulent. It is not a few rotten apples. It is an orchard of one percenters who are rotten to the core.

Related Links:

William Black: Why No One Went to Jail During the Credit Crisis

Thoreau, RICO & Mortgage Fraud

Gerald Celente on MF Global, Fascism, and the Culture of Corruption

tok1's picture

<p>I agree with above. The key issue with the banking crisis was that the banks capital was not wiped out. &nbsp;ie instrad of wiping out the capital, and the Govt stepping in to guarantee deposits (and then having the loans ect restructured) they used the excuse of too big to fail which is complete rubbish. They could have kept running the banks in receivership and once the Govt took them over the depositers would have felt more secure. Given the management had bankrupted these large companiese they should have been instructed to facilitate the restructuring of the institutions with the new management / receivers in control. If any illigal activity was present they should have been prosecuted. Then once the restructuring had been finished the Govt cold then reissue shares for the clean restructured bank and possible not suffered losses</p><p>. &nbsp;This has been done many times before. &nbsp;Using the FED to provide zero rate funding.. and having US tax payers bail out the banks (before banks capital is wiped out) &nbsp;makes no sense unless your protecting the rich. Also the FED poilicy has subjected depositiors to low rastes for 4ys just to support the banks and expanding Govt debt, while the banks still fail to increase lending its been a complete failure. Lastly depositors do not get any reward if banks profit improves unlike shareholders, and were expecting their investment to be no risk... so the banks  defrauded them buy taking excssive risk.. Share holders need to assess the they get the dividend / higher stock price when it works (same with bond holders to some degree) depositors are a different class 

brettd's picture

I would wager that there are no indictments because:

Buried in the legislation passed by politicians, the banks followed 

the letter of the law....and if brought to trial, they would simply 

refer to the legislation's fine print and say "....we were just complying

(on speed, mind you) with what the government told us to do."

Politicians don't want that attention, so no prosecution.

dizzyfingers's picture

It would be interesting to know how many unwanted/unneeded housing units there are around the world.

Calling all space aliens, come and get them.

ThisIsBob's picture

Anybody smart enough to get here has to be smart enough to stay away.

dizzyfingers's picture

Quote: Plenty of "conservative" Senators voted "yes" for Geitner & Holder. Unquote

Absolutely right -- hang them all and let their carcasses rot on the ropes for all to see their example of treachery.

BandGap's picture

Time for blaming is over. regradless of how we got here, we are here. The consequences for those who will be held accountable can only happen after a collapse.  Let it flow.

The biggest numbers above aren't the debt, it's the unemployment AND the fact that these young people cannot switch gears and get back into the system. There is no system, no employment structure in Spain. They esentially put all their eggs into one basket. Keep in mind that this is also an economy that went all in on green energy. The infrastructure for a productive economy os completely discombobulated.

Greece was a slow bleed, Spain will merely collapse like a house completely gutted by termites. It will have to be rebuilt from the ground on up.


brettd's picture

I went to Sunday School and considered something radical:

Jubilee (see Deut. 15).

Wipe out the debt.  

People can keep, rent or sell, what they've mortgaged.

End Fannie and Freddie.

Banks and the Fed clear their balance sheets.

No prosecutions, but no bonuses no gaming foreclosed houses.

Not easy.  Not perfect.  Not even "fair" or "just"

But it would clear the market, bury the hatchet, and quickly give 

certainty to a market that's been adrift for over half a decade. 

The worst thing that would happen would be that we'd "give" some houses

to people who don't "deserve" them. If erring on the side of generosity is 

our worst fault, so be it.

We've already wasted the money.  You'll never see convictions. 

We made a policy and it failed.  

We've paid the piper a couple times over, so let's learn our lesson, take the hit

and move on.

Would it be any worse than what Roehmer, Sommers, Geitner, GS, JPM et al  have

given us?



GMadScientist's picture

A few kilo of spiked narcs in Ibiza and that youth unemployment will trend better. Just sayin.


brettd's picture

Bankers took over because the House and Senate Let them.

And it wasn't just Barney Frank and Chris Dodd....

Plenty of "conservative" Senators voted "yes" for Geitner & Holder.

BeetleBailey's picture about pooing in their collective pantelones! iCarumba!

eddiebe's picture

The squid wants their gold.

Bubble's picture

Another point is that the Spanish banks don't have to mark down their bad assets. even if a mortgage holder defaults. Even after the keys have been handed over, there is no walk away.

"Following article 1911 of the Spanish Civil Code on signing a mortgage deed you will be held liable with all your current and future assets. The mortgage is only a guarantee subject to the financial loan acting the property or underlying asset as collateral."

In reality of course, the likelihood on any returns from a bankrupt , unemployed, dispossessed former homeowner is highly unlikely. But the banks can still avoid marking down their balance sheet. Legally I guess that isn't fraud.

It's rarely mentioned when Spain is discussed, but seems huge to me.

trebuchet's picture

I heard on (reasonably reliable) radio commentary they have marked down 60% of bad property loans to date.






Bubble's picture

Thanks.will check. I wonder what constitutes a bad property loan and how much they actually marked values down? I struggle to believe that is true tho.

ebworthen's picture

Great recipe for disaster; having 50% of the youth unemployed and no pensions for their parents and grandparents who gave taxes to the system for 50 years.

Recipe for riots and civil and international strife.

Why do we not learn from history?

Generational hubris?

Jack Sheet's picture

It's a true privilege to be imparted wisdom by the 1%

JOYFUL's picture caught that did you!

How to Play the Collapse of the European Banking System and it explains exactly how the coming Crisis will unfold as well as which investment (both direct and backdoor) you can make to profit from it....

Join the special few who will do what it takes to bob[blob?]to the top of the forthcoming live&interactive remaking of the a entire culture goes down -witnessed only by those who sequestered the liferafts and make off to their hideyholes clutching their bags o gold like a bunch of BeagleBoys breakin out of Duckville prison...

Graham, an' all you MoFo 1%ers what think yu gonna profit offa the demise of therest of us:

Spain's gonna be alright - long history of brigandage...similar to that of all the rest of your intended victim nations...Klephts in Greece, Rievers of the Scots borderlands, Raparees of Ireland, Hajduks of the Slavic marches, well, yu get the picture....

no matter the size of yur armored Humvees, the number of yur armed retainers, the techno-wizardry with which you would think to buy yurselves invulnerability, there will be the day when you need to move through that mountain pass where we lurk awaitin ye's - an like all the little Napoleons before you, you'll wish you'd studied our names, our leyendas, a little better before your fateful appointment with destiny...

The Truth About the Spanish Banking System That 99% of Analysts Fail to Grasp...."Ladroni, siete voi!"

Soon there will be new incarnations of El Guapo, El Tempranillo, and all the rest of the cast of bandoleros stretching back through the shadowy mists of time from pre-Roman times to the Navarrese guerillas of John Tone's The Fatal Knot  - all awaiting the pleasure of your collective company at the feast of vultures that will be the prelude to yur "Spanish Ulcer"!

xela2200's picture

What I would like to know is a time line? I just can't stand this slow moving train wreck.

Ying-Yang's picture

Xela2200 the train has run off the tracks and the box cars are starting to fall off the tracks. We are watching the EU bond market turn. Next Japan and then the US. The carnage has started and all the central banks know it.

They will print until they can't but the snowflakes falling on the mountain of debt have already started moving downhill and all of us will be amazed at the speed of the ensuing avalanche.

Any and all actions will be tried by the central banks and sovereigns to no avail.

tired1's picture

When the locusts have done with the crops in the fields - that will be an indication. Cauton! Dont plant any more crops (or figure out how to get rid of the locusts).

Amagnonx's picture

Agreed - the best strategy is to develop a taste for locusts, and learn how to pickle them.

El's picture

Even if he gave you date and time, it would still only be a guess, and your guess would be as good as his. No one can know with any certainty. Best thing anyone can do, imo, is to prepare. If you are focusing on that, you won't have a lot of time to focus on the slow moving train wreck, which in truth, really isn't moving slowly at all. Its speed is increasing daily.

Dannyb2b's picture

To solve the problems in Europe you need to create aggregate demand. I think a solution is for the central bank to conduct poilcy directly with the public and not the banks with an inflation mandate. Money doesnt need to be created as debt either. Check out this proposal if interested: 

CompassionateFascist's picture

No Danny. The entire Globalist/Group Entitlement debt Ponzi needs to collapse. And it will. Real soon. Too soon for most of us; if we're lucky - depending on when Netanyahu pushes the button on Iran - we still have 100-150 days to prepare. Invest in lead.

Uchtdorf's picture

Miercoles, what a mess! After the crash can we all please remember to never, never, ever, let bankers take over again?