Banks and public debt current state
Since late 2011 and early 2012 the European Central Bank (ECB) operations set in motion long-term funding, the Spanish banking emerged as the main buyer of Spanish public debt, accentuating the vicious circle between sovereign risks and banking risks, the passing is one of the objectives of the Banking Union that starts this year. As part of this objective, there is the paradoxical that the evaluation exercise prior to such banking union precisely penalizes banks for their holdings of government debt, as has become clear in the criteria recently published by the ECB itself and the European Banking Authority.
In any case, these criteria of EBA and ECB fall new and some kind of penalty had been anticipated for several months so it is not surprising that Spanish financial institutions and also those of other countries such as Italy or France from conducting significant sales of government debt in the final months of 2013, in an attempt to present a year-end which shall be based on the above, end up with less debt on their balance sheets.
Specifically, Spanish banks reduced their holdings of government debt at over 50,000 million during the second half of 2013, ending the year with holdings of about 260,000 million, representing 8.6% of their total balance. As for Italian banks, including major European countries, they recorded national public debt holdings with a higher relative weight on the balance (10.1%). Two interesting points emerge from these intense government bond sales conducted by the Spanish banking. The first refers to the balance in the debt market itself. If the dealer sold 50,000 million, who has bought them? And especially considering that the treasury needed to continue issuing additional net debt. The answer follows a clear buyer role of non-resident investors in a renewed investor appetite for Spanish assets. In fact, that foreign investor appetite for Spanish assets is not only confined to the public debt market, but also to the high emissions conducted by Spanish financial institutions themselves.