Spain has approved a 99 billion euro ($137.9bn) bank restructuring fund to spur mergers and prevent solvency problems at smaller banks damaging confidence in large, publicly-traded institutions.

Faced with spiralling bad debts after the collapse of a real estate boom, Spain's Socialist government issued a decree to create the fund for ordered bank restructuring, firing the starting gun on an expected wave of bank tie-ups and interventions, said a report in our sister publication, the Gulf Daily News.

"This is a really positive move, they're taking the bull by the horns and converting systemic risk into selective risk," said Citi strategist Jose Luis Martinez, who saw the fund restructuring the sector over years rather than months.

The government said it expected some banks to face solvency risks in the next months after bad loans quadrupled in the past year. "We are trying to avoid problems at any institution," said Deputy Prime Minister Maria Teresa de la Vega.

The law will now go to parliament, but as its contents have already been negotiated with the main conservative opposition party, it should be approved without much trouble. – TradeArabia News Service