The Spanish government Friday approved a bank reform aimed at injecting credit into the stagnant economy and restoring investor confidence, including heavy cuts into the salaries of top bankers.
Executives of banks receiving funds from the bank restructuring fund FROB may not make more than 600,000 euros ($780,000) annually, Economy Minister Luis de Guindos announced.
Executives of banks that have received Bank of Spain intervention may only earn half of that amount.
The cuts were to be an example for a society which had to "make sacrifices" at the time of an economic crisis, de Guindos said.
The measure will affect for example Rodrigo Rato, a former managing director of the International Monetary Fund, news reports said. Rato now heads Bankia, a bank which has received loans from the FROB. Rato earned 2.3 million euros in 2011, according to a figure given by the daily El Mundo.
The financial reform, which was already outlined on Thursday, forces banks to set aside provisions -- estimated at a total of 50 billion euros -- to cover toxic real estate assets.
The assets were left over from the previous housing boom, which collapsed during the global crisis.
Banks must meet the provisions by the end of the year. But those that announce merger plans by May 30 have one more year to do so, the government said in a move to encourage mergers.
Merging banks have access to loans from the FROB, on condition of giving more credit to businesses and families. The FROB will be stocked up from 9 to 15 billion euros with the help of a debt sale.
The government believes the new rules will make many banks reduce the value of their property holdings, which would cut prices for home buyers. Spain has hundreds of thousands of unsold homes left over after the meltdown of the property sector, which had contributed nearly 10 per cent of gross domestic product (GDP).
Economy Minister De Guindos has described the financial reform -- which followed two similarly oriented ones by the previous Socialist government -- as "the most intense restructuring in the European Union."
Spanish banks have about 175 billion euros in troubled assets, the government estimates. The reform is aimed at cleaning up their balance sheets and restoring the confidence of international financial markets, where Spanish banks have trouble obtaining financing.
Some analysts doubted whether the reform would help to galvanize Spain's crisis-hit economy, given that it was slipping back into a recession and that the healthiest banks -- not needing help from the FROB -- would not need to open their credit taps.
The reform is almost certain to be approved by parliament, where Prime Minister Mariano Rajoy's People's Party (PP) has an absolute majority.
The government, which took power in December, has also announced spending cuts and plans for a labour market reform in attempts to boost growth and to cut the budget deficit, which is estimated at about 8 per cent for 2011.
Unemployment has meanwhile soared to nearly 23 percent, about twice the European Union average.
