…there are too many unanswered questions. How much capital will actually be provided? Which banks will need to be recapitalized? How will the process be managed? The answers won’t be known until two independent valuation experts have reported at the end of June. The International Monetary Fund assessment estimates \u00e2\u201a\u00ac37 billion was needed to ensure all banks had a 7% core Tier 1 ratio on a phased-in Basel III basis. But the market will probably demand at least 9% on a fully loaded Basel III basis after substantial new write-downs, suggesting a number much closer to the full \u00e2\u201a\u00ac100 billion.<\/p>\n
One key unknown is where the bailout money will come from. Will it be from the old euro-zone bailout fund, the European Financial Stability Facility, or the new European Stabilization Mechanism, due to come into existence in July? If it comes from the ESM, existing government bondholders will be subordinated\u201d\u201dno small concern given \u00e2\u201a\u00ac100 billion is more than 10% of Spanish government debt outstanding. That could affect the willingness of bond markets to keep funding the government.<\/p>\n