Spain’s banking system is imploding as the Spanish government implodes, too:
What this all means is that Spain will need to request a full bailout soon. A broken system can persist much longer than people realize, but Spain is rapidly approaching the day when its checks begin to bounce.
Spain needs to sell at least €90bn worth of bonds between now and the end of the year to finance its budget deficit and maturing debt. Its banks are its best, and some say only, customers for its debt. The Spanish banks are rapidly approaching the point where they simply run out of cash and cannot buy this debt.
The bailout of Spanish banks is like a backdoor bailout of Spain itself. The banks take the capital injections from the bank bailout, turn around and buy Spanish government debt. This allows Spain to continue financing itself. Meanwhile, the European taxpayers are on the hook for Spanish bank losses.
The Spanish people have begun to realize that the confiscation of their savings is becoming more likely. Whether they take a haircut on their accounts when the banks fail or whether their euros are eventually exchanged for pesetas, they are aware of the risks and have begun moving their money to other jurisdictions. Once a bank run starts, it does not stop, contrary to what you read in this article.
This deposit flight will make a larger bank bailout necessary. Spain cannot afford this, so it will be required to seek a bailout for itself soon. It will try to delay this as long as possible, but it will happen after regional elections on October 21.