Bank boss blasts Cyprus contagion talk

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.

Bank boss blasts Cyprus contagion talk
The European Central Bank offices in Frankfurt, Germany. Picture: UggBoy/Flickr

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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‘Spain is not Cyprus’: Euro bank boss

The President of the European Central Bank Mario Draghi said on Thursday that the Cyprus bailout model would not act as a model for future financial rescues.

'Spain is not Cyprus': Euro bank boss
The president of the European Central Bank wants to see the establishment of a supervisory body for Europe's banking system as soon as possible. Photo: Daniel Roland/AFP

Speaking after a meeting of the governing council of Europe's central bank in Frankfurt, Draghi said Cyprus was "no template" for future interventions by the lender.

During a press conference, Draghi dismissed the speculation that had emerged about possible future Cyprus-style bailouts after March comments by the head of the Eurogroup, Jeroen Dijsselbloem.

The bank chief said: "I am absolutely sure that the chairman of the Eurogroup has been misunderstood."

"Spain is not Cyprus," Draghi also said during his press conference.

In his press conference, the bank boss was, however, less than full of praise for the initial proposal to sack Cypriot uninsured bank accounts holding less than €100,000. 

"That was not smart, to say the least, and was quickly corrected (by euro zone finance ministers)," he said.

"You have a pecking order, ideally insured depositors should be the very last category to be touched. The (European) Commission draft directive (on banking) foresees exactly this. 

"There isn't actually a specific distinction between categories of bondholders and uninsured depositors in the draft directive. But basically the point is that you, if you can, don't touch uninsured depositors," Draghi stated.

But Draghi did say the Cyprus bailout. had "reinforced the determination of governing council to support the Euro".

The central bank chief also stressed the need to set up a body charged with overseeing Europe's banking system so that crises like Cyprus could be avoided in future.