What happens To My Mortgage in Spain if My Bank Goes Bust?

Costa CalidaThe European Commission will recommend that Spain shut down any problem banks which do not pose a serious risk to the financial system. This will be one of its conditions for granting Spain a loan of 100 billion euros to recapitalise its banks.

In principle, the savings of customers of the affected banks should not be at risk. However, restructuring a bank is a complex process because, unless it is bailed out, any debts owing to the bank will still have to be paid – another bank will take over the mortgages – while savings are only guaranteed up to a 100,000 euro limit. This means that any savings over and above this limit will be used for the liquidation of the bank.

Which Banks Cannot Fail?

A bank which can destabilise the financial system as it can bring down other banks when it fails because it is so big. After the collapse of the Lehman Brothers the expression “too big to fail” was coined in the United States.

The European Banking Authority (EBA) carried out stress tests on Europe’s systemically important banks in 2011 to gauge whether the banks were adequately capitalised. According to their criteria, systemically important banks are banks which have over 150 billion euros in assets.

According to this definition, there are six key banks in Spain: Santander, BBVA, Bankia, Popular, Sabadell and CaixaBank.

Until Bankia is recapitalised using 23,465 million euros of public funds, the banks Novagalicia Banco, Catalunya Caixa and Banco de Valencia will remain nationalised. Some bailed out banks had already been auctioned off previously, including Caja de Ahorros del Mediterráneo (CAM), Cajasur by BBK, and Caja Castilla-La Mancha by Cajastur

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What  happens to my mortgage if my Spanish bank goes bust
If a bank fails its assets will be shared out between its creditors. If it is bailed out using public funds “the most likely scenario” is that the State will either take over the collection of the mortgage loans granted by the bank, or will sell them to another bank. In this case the bank which has bought the mortgage loans will assume any non-payment risks.

Therefore, if you have a mortgage with a bank that closes you will not benefit from its closure, as you will still have to pay the outstanding mortgage to another bank, or to the state.

All this really tells us is that as long as your money is with the big 6 banks you are completely safe, outside of that its anyones guess but Spain is not going to implode no matter what the doom mongers have to say on the subject.