FRANKFURT (MNI) – The following is the statement on the First
Financial Sector Monitoring Mission to Spain, emailed by the
International Monetary Fund on Friday.

“A staff team from the International Monetary Fund (IMF) visited
Madrid October 15-26 for the first independent monitoring mission of the
financial sector in the context of the European financial assistance for
bank recapitalization, agreed with the Spanish authorities and the
European partners on July 20, 2012 (see Terms of Reference). The team
met with official and private sector representatives, and at the end of
the visit presented a preliminary report to the Spanish authorities and
the European Commission. The final report will be conveyed to the
authorities and the Commission in early November.

The main finding of the preliminary report mission is that
important progress has been made in reforming the financial sector. All
deadlines established in the Memorandum of Understanding (MOU), agreed
between the Spanish and European authorities, have been met. It will be
important to maintain the momentum as challenging steps lie ahead. More
specifically, the preliminary report finds that:

– On the macrofinancial context. Financial market conditions have
improved since the announcement of the ECB’s Outright Monetary
Transactions program, though they remain fragile, and the economy and
banks face headwinds.

– On bank restructuring and resolution. The bottom up stress test
was technically robust and provides a sound basis for indentifying
undercapitalized banks. As already envisaged under the MOU, the capital
shortfalls need to be quickly made up, recently-created burden-sharing
tools applied, and non-viable banks promptly wound down. New mergers
that do not clearly generate value and undue constraints on system-wide
credit supply should be avoided.

– On the Asset Management Company (AMC). Key design features and
the general legal framework of the AMC have now been defined. However,
strong efforts will be needed to make the AMC fully operational by the
end-November deadline. It will be important to ensure the right
incentive structures, especially for the independence of AMC management
and the effective management of the transferred assets.

– On burden-sharing and resolution framework. The new law is a
significant achievement. A governance model for nationalized banks that
preserves their autonomy should also be considered.

– On regulation and supervisory framework. Significant progress has
been made, including adoption of new consumer protection and securities
legislation.

The second financial sector monitoring report is expected to be
produced in the first quarter of 2013.”

— Frankfurt bureau: +49 69 720 142; email: frankfurt@mni-news.com —

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