Run On Banks In Spain Is Very Real

 | May 20, 2012 04:29AM ET

As Spain's banking sector The Telegraph  (a different article): "Spanish banks have plenty of liquidity. They've been funded for the next two years through the central bank so there's no problem of liquidity at all in Spain," Mr Fernandez de Mesa told the BBC this morning.

"We have had two LTR's from the European Central Bank so they are funded for the next two years."

He said the recent fears around the health of the country's banks were linked to their exposure to the property market.

Moody's last night cut the ratings of 16 Spanish banks, citing the reduced ability of the Spanish government to provide support to the sector, as well as the "adverse operating conditions" characterised by a renewed recession.
 
Mr. Fernandez de Mesa is right. The ECB's LTRO is keeping Spain's banks on life support. But as deposits flee, these banks have no other source of funding. Make no mistake about it - the Spanish banking system is in the middle of the largest run on banks it has experienced in recent times. The process may not look like the old pictures of hundreds of people lining up outside a bank branch to collect their cash (as the Great Depression era photo above shows). With electronic transfers across the euro-one, they don't have to stand in line. Even if the politicians and the bureaucrats lie about this issue, the numbers don't. Here is what Spain's run on banks actually looks like: