The FROB scheme has allocated 9 billion euros, although it is expected that its real requirements will be much greater. The collapse of the real estate bubble in Spain has led banks and cajas to acquire some 60 billion euros in seized properties. To see the reform through, the FROB has been legally authorized to run debts of up to 90 billion euros by reaching out to capital markets.

The solvency and liquidity problems crippling Spanish savings banks have the same root cause. During the building fever, the cajas signed approximately 50 percent of mortgages. Now, after the worst recession in 60 years, the cajas will have to pay back some 46 billion euros in loans this year and 76 billion in 2011.

COLD MERGERS

The Bank of Spain has launched a program of "cold mergers," or Protected Institutional Societies (SIP), which means mergers of savings banks.

There are key differences between high street banks and savings banks in the financial system operative in Spain until now. Largely under the control of regional governments, the cajas were never run by professional managers and had close ties with local political parties. Also, with very few exceptions, the cajas could not be valued in the stock market and were obliged to destine part of their profits toward social and charitable projects.
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