More bank bail-outs loom for new Spanish government

A crippling squeeze on funding for Spain’s banks has pushed them to the brink and the new centre-right government has nowhere to turn to finance more expensive bail-outs or the creation of a bad bank.

The Bank of Spain took over small bank Banco de Valencia on Monday, the day after an election in which the People’s Party (PP) swept to power, to inject 1 billion euros ($1.4 billion) of capital after the lender ran out of liquidity.

Money markets have long been shut to Spanish banks, and with short-term yields on sovereign debt higher than 5 percent other options such as corporate paper have become too costly.

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