In what has to be the most insane level of desperation, the Spanish banking system is lobbying to turn its deferred tax 'assets' into fungible capital to meet new stricter Basel III requirements. In other words, the Spanish banks believe that capitalizing historical losses provides a fungible 'stash' of capital against future losses... Following this morning's round of incredulity from the Spaniards, we have no words...
Spanish banks are lobbying the government to turn more than two thirds of their 50 billion euros ($65 billion) in deferred tax assets into state-backed tax credits that would boost their capital but add to the state's debt, three banking sources said.
The so-called deferred tax assets (DTAs) are created when a bank makes losses or writedowns that it can offset against future tax bills when it returns to profit.
Under stricter Basel III rules on capital, being phased in as of January 2014, most forms of DTAs will no longer be allowed to count towards capital, while tax credits will be.
Spanish banks are asking the government to convert between 15 billion and 30 billion euros of their DTAs into tax credits, the banking sources said.