INMO Associates

Spain on Monday said it would provide up to €100bn of guarantees for new debt issued by commercial banks in 2008 and an unspecified further amount next year as part of a eurozone plan to restore confidence in the financial system.

The Spanish Prime Minister said the cabinet had also approved a measure allowing the government to buy bank shares, although ministers say they do not see the need at this stage to inject capital into Spanish financial institutions.

The government says its priority is to keep credit flowing so that the economy can function normally.

The fund is designed to complement the liquidity facilities of the European Central Bank by providing money for continued bank lending to Spanish businesses and individuals.

Conservative regulation by the Bank of Spain helped to save Spanish banks from the direct effects of the subprime loan crisis in the US, although several of the unlisted Spanish cajas - savings and loans institutions – face a growing problem of bad loans to property developers and to individual mortgage borrowers.

Santander, the biggest bank in the eurozone, was in talks on Monday to buy the whole of Sovereign Bancorp of the US .

For full story –

http://www.ft.com/cms/s/0/1d1019e0-991f-11dd-9d48-000077b07658.html

By Victor Mallet in Madrid

Published: October 13 2008 13:52 | Last updated: October 13 2008 13:52