IMF Downplays rumours About Backstopping Spain, But Acknowledges It's Making Contingency Plans For A Bailout

ORIGINAL (12:30 PM ET): Markets are shooting higher after headlines indicating that the IMF might be willing to backstop Spain even if the country and EU leaders can’t make a plan to backstop failing bank Bankia.

The Spanish government has struggled to find a way to backstop the country’s third-largest bank and biggest holder of domestic real estate assets.

It recently agreed to bail out the failing bank, after mergers and loans failed to cleanse its balance sheet. The European Central Bank recently rejected a proposal in which the Spanish government would issue €19 billion in domestic government bonds to the troubled lender that it could use as collateral against an ECB loan, according to reports. Spain may also have considered issuing €19 billion in debt to the public to finance the bailout.

These tweets may have generated the mayhem:

UPDATE (1:15 PM ET): The IMF is downplaying earlier reports that it was considering a plan to offer Spain a rescue loan if the country could not find a way to backstop troubled bank Bankia.

CNBC reports that these discussions are part of “internal contingency planning” at the fund, but that it had not formally discussed this possibility with Spain. U.S. Treasury Secretary Timothy Geithner and IMF chief Christine Lagarde are meeting with María Soraya Sáenz today, but rescue plans will not be discussed.

Regardless of efforts to minimize talk about its involvement, the very fact that the IMF was discussing a loan to Spain as a possible contingency suggests that the IMF not only sees a failure to find funding for Bankia as a significant risk, but that it could step in in a worst-case scenario.

Here’s a look at the Dow today:

chart

Photo: Marketwatch

 

Everything You Need To Know About The Failing Spanish Bank Bankia >

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