Bank of Spain deputy on what banking union will mean for national lenders

European banking union entails "appreciable challenges" for Spanish banks, which will have to adapt to new rules, criteria and procedures for interacting with supervisors and may see the composition and cost of liabilities affected by new resolution regulations, Bank of Spain deputy governor Fernando Restroy said in a speech on Monday.

"All in all, the Spanish banking system will foreseeably not face more complex challenges than those being posed in other jurisdictions, thanks to the unprecedented reform implemented in the past year following the assessment commissioned from an external consultant within the framework of the financial assistance programme," Restroy said.

He added that the "significant reduction of the exposure to the real estate sector through the substantial increase in provisions and the entry into operation of Sareb [a ‘bad bank'] made it possible to defuse one of the main sources of vulnerability of the Spanish financial system."

"By the end of the year we expect capital levels to be above 10% for the sector as a whole, both under the EBA definition and under the Basel III definition of common equity tier 1 to be used from January when the new European solvency regulations come into force," Restroy said.