Spain's Deposit Guarantee Fund Ended 2011 €2 Billion In The Hole

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Spain’s Deposit Guarantee Fund (FGD) closed 2011 with negative €2 billion ($2.4 billion) in assets, according to Spanish newspaper ABC.ABC reports that most of those losses were accumulated during the restructuring of Banco Caja de Ahorros del Mediterraneo (CAM), which cost the fund €6.384 billion.

The Fund began with some €6.5 billion euros, which was apparently been exhausted before the government asked Spain’s banks to up their contributions to the guarantee fund late last year.

The Fund spreads liability for losses over commercial and savings banks, the latter of which have been dramatically transformed in the last few years. The government currently does not contribute to the fund, which is comprised of bank funds.

That renders the prognosis grim for the FGD, as deposits flood from Spanish banks. This could change with the implementation of an EU-led bank bailout announced in June.

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