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Bank boss blasts Cyprus contagion talk

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Bank boss blasts Cyprus contagion talk
The European Central Bank offices in Frankfurt, Germany. Picture: UggBoy/Flickr
08:17 CET+01:00
The head of Spain's main banking association said on Thursday he had no fear of contagion from debt-hit Cyprus, which is fighting to avoid a banking meltdown.

But Spanish Banking Association chairman Miguel Martin Fernandez criticized an initial plan to tax deposits in Cyprus bank accounts, a scheme that sowed near panic on the island.

Investors have so far shown no sign of fleeing the Spanish debt market over concerns that the Cyprus turmoil could spread to other troubled euro zone states.

"I have no doubt that Cyprus will not be made a precedent and there will be no contagion," the Spanish banking association chief told a news conference.

"It does not make any sense for deposits in euros in a European bank, even if it is Cypriot, to be treated differently to deposits in any other European bank, even if it is in Germany," he said.

The Cypriot government was meeting Thursday to find a "Plan B" after lawmakers unanimously rejected the startling plan to impose a one-off levy on bank deposits in return for a 10-billion-euro ($13 billion) international bailout.

The European Central Bank has warned it is ready to pull the plug on emergency funding for Cyprus banks unless the government clinches a bailout deal by Monday.

Despite the Cyprus worries, Spain's borrowing costs dipped in a bond auction Thursday.

Spain's treasury raised 4.513 billion ($5.8 billion) in a sale of two-, five- and 10-year bonds, exceeding its own target range of €3.0-4.0 billion as demand outstripped supply by nearly three to one.

The rate of return demanded by investors eased slightly from similar bond issues in the past month.

"This was an encouraging debt auction, and suggests that Spain's aggressive start to its 2013 sovereign financing cycle is unlikely to be knocked off course by events in Cyprus," said Raj Badiani, London-based analyst at research house IHS.

"Encouragingly, the Spanish treasury has conducted two successful debt auctions since the crisis flare up in Cyprus, and after today's bond auction has completed 34 percent of its total 2013 medium-and long-term bond issuance schedule," he added.

The Spanish Banking Association groups domestic and foreign deposit banks operating in the country, but not savings banks or former savings banks since transformed into deposit banks, such as Bankia.

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