Spanish banks 1, Spanish mortgages 0

April 24, 2012

The trillion euros lent out by the European Central Bank for three years at a rock bottom interest rates were supposed to do two things –  throw a comfort blanket around Europe’s wobbly banks and pump money into  moribund economies. Some new data from struggling Spain confirms that while there may be a bit of a case for the former, the latter is still falling short.

Mortgage lending by Spanish banks  had their largest annual drop in more than six years in February – coming in at essentially half of what they were a year earlier. There are all kinds of reasons for this, not the least being that large numbers of Spaniards are out of work and house prices are still tumbling with at least one estimate being that they remain as much as 30 percent overvalued.

But given that Spanish lenders were among the biggest taker of the ECB’s largesse  (officially known as  LTROs, a name only a central banker’s mother could love) the lack of trickle down  is less than bracing.  The suspicion is that Spain’s banks are holding back on lending because of their wonky balance sheets, which is of course a good thing in itself it it keeps the financial system on its feet.

This  would fit with data from the ECB itself showing banks in general are so flush with money they don’t know what to do with it.  Tuesday’s  ECB’s overnight deposit facility showed banks parking 768 billion euros there. In normal times the amounts are minimal.

So while the money may be helping bank’s rebuild their  balance sheets (Goal 1),  it is not yet getting into the general economy (Goal 0).

Just ask a  Spanish home buyer.

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