Excerpted from the story here:
From their lofty perches, first at Spain’s central bank and then as the IMF’s top executives assessing global banking risk, José Viñals and Jaime Caruana were well positioned to sound alarms about the looming bank debacle. ...
Pressed at an IMF news conference in July 2008 about falling house prices in Spain, [Mr. Caruana] acknowledged there might be loan losses. But he said, “The financial system in Spain is able to cope with that and is properly capitalized.” ...
In Spain, the increase in house prices between 2000 and 2007 was particularly extreme — so much so that as early as 2006, a team of inspectors within the Bank of Spain sent a cautionary report to the government.
The study criticized the “passive attitude” of Mr. Caruana, who led the central bank from 2000 to 2006, and the extraordinary acceleration of loans to homebuyers and real estate developers.
The inspectors also warned of Spanish banks engaging in unusually heavy short-term borrowing at levels far beyond their deposits. ...
[A] real estate specialist based in Barcelona, says that ... the Spanish central bank in 2004, led then by Mr. Caruana, succumbed to bank lobbying and pressure from Europe by halving the amount that banks had to set aside to 15 percent of overall loans, from 30 percent. ...
Mr. Caruana’s career has since thrived. After just three years at the IMF, he left in 2009 for one of the plum global finance jobs: chief executive of the Bank for International Settlements, the Basel-based regulatory body that serves as a forum for the world’s central banks.
Don't miss the rest of the story about the other characters in this debacle, at the link above.
