U.S. Tells Spain Solution Needed for Troubled Spanish Banks

Reuters

Treasury Secretary Timothy Geithner told Spain that a solution is needed for its troubled financial system, Spanish Deputy Prime Minister Soraya Saenz de Santamaria told reporters on Thursday.

Saenz de Santamaria said she discussed with Geithner strategies to recapitalize her country's banks.

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"The treasury secretary pointed out that we are working toward the same goal and a solution for the banks must be found," she said after the meeting, adding that the strategies they discussed were also for other troubled European banks.

Bankia, Spain's fourth largest lender, has asked the government for 19 billion euros to cover exposures to real estate and potential losses on repossessed property. The Spanish government is now required to lay out its plans for refinancing the lender, which it effectively look over earlier this month.

A government source told Reuters this week that Spain would likely recapitalize the bank by issuing new debt and possibly drawing cash form the bank restructuring fund and Treasury reserves.

Saenz de Santamaria, whose trip to Washington had been planned before Spain's crisis escalated, also met with the head of the International Monetary Fund, Christine Lagarde, on Thursday.

The U.S. Treasury later said Geithner and Saenz de Santamaria discussed the Spanish government's plans to strengthen its financial sector as well as the "significant progress" that Spain has made on fiscal and structural reforms.

Europe's sovereign debt crisis has intensified in recent weeks over the health of Spain's banks and uncertainty about whether Greece will remain in the euro zone.