Economy & Finance

Bank of Spain says it sees no sign of deposit flight

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MADRID (Reuters) – The Bank of Spain said on Saturday there were no signs of capital flight from Spain as a result of developments in Cyprus, where euro zone ministers are demanding that depositors forfeit some of their savings to avert bankruptcy.

“As far as I am concerned, the Spanish banking system is running under absolutely normal conditions,” a spokesman for the bank said.

Cyprus is the fifth country after Greece, Ireland, Portugal and Spain to turn to the euro zone for financial help during the region’s debt crisis.

In a radical departure from previous aid packages, euro zone ministers are insisting that Cyprus’s savers pay up to 10 percent of their deposits to raise almost 6 billion euros.

Official Spanish sources were quick to argue that the approach taken with Cyprus would be unique.

“Cyprus’s situation and this agreement cannot be extrapolated to any other country in the euro zone,” a Spanish economy ministry source said on Saturday.

“It’s a positive deal because it resolves the problem of Cyprus and at the same time gives a clear message about the stability and sustainability of the euro.”

The euro zone struck a deal on Saturday to hand Cyprus a bailout worth 10 billion euros ($13 billion), but demanded depositors in its banks forfeit some money despite the risks of a wider run on savings.

The Cyprus parliament was due to meet on Sunday to vote on the package, and approval was far from assured.

Europe bailed out Spain’s weakest banks last year to the tune of 40 billion euros to prop up a financial system badly damaged by a 2008 housing and construction crash.

Spain’s banking sector has undergone a massive clean-up since then, transferring over 50 billion euros of toxic real estate assets to a so-called ‘bad bank’ set up as a condition of the rescue.

But Spain’s gross domestic product sank for the sixth straight quarter at the end of last year and at its fastest rate since 2009. ($1 = 0.7654 euros)

(Reporting by Sonya Dowsett- Editing by Jason Webb and Stephen Powell)

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