The proposed €60Bn in support by the ECB for Spanish banks is woefully inadequate for several reasons.
First, Bankia which represents ~18% of assets is targeted to receive ~45% of the capital. This assumes that the remaining banks do not share similar exposures and risks – an easily identifiable and incorrect assumption.
Second, and most importantly, the combination of underestimating current loan loss reserves and expected loan losses do not foot with recent trends. The combination of underestimating the scope of banks in the system that require assistance, current under‐reserving and underestimating future potential loan losses results in a much larger capital infusion than the €60 billion Euros estimated by Oliver Wyman.