And the EU knew about it. So says Jonathan Weil for Bloomberg.com, here:
One of the catalysts for last weekend’s bailout request was the decision last month by the Bankia (BKIA) group, Spain’s third-largest lender, to restate its 2011 results to show a 3.3 billion-euro ($4.2 billion) loss rather than a 40.9 million-euro profit. Looking back, we probably should have known Spain’s banks would end up this way, and that their reported financial results bore no relation to reality. ...
One of the more candid advocates of Spain’s approach was Charlie McCreevy, the EU’s commissioner for financial services from 2004 to 2010, who previously had been Ireland’s finance minister. During an April 2009 meeting of the monitoring board that oversees the International Accounting Standards Board’s trustees, McCreevy said he knew Spain’s banks were violating the board’s rules. This was fine with him, he said.
“They didn’t implement IFRS, and our regulations said from the 1st January 2005 all publicly listed companies had to implement IFRS,” McCreevy said, according to a transcript of the meeting on the monitoring board’s website. “The Spanish regulator did not do that, and he survived this. His banks have survived this crisis better than anybody else to date.”
McCreevy, who at the time was the chief enforcer of EU laws affecting banking and markets, went on: “The rules did not allow the dynamic provisioning that the Spanish banks did, and the Spanish banking regulator insisted that they still have the dynamic provisioning. And they did so, but I strictly speaking should have taken action against them.”
Why didn’t he take action? McCreevy said he was a fan of dynamic provisioning. “Why am I like that? Well, I’m old enough to remember when I was a young student that in my country that I know best, banks weren’t allowed to publish their results in detail,” he said. “Why? Because we felt if everybody saw the reserves, etc., it would create maybe a run on the banks.” ...
Someday maybe the world’s leaders will learn that masking losses undermines investor confidence and makes crises worse. We can only hope they don’t manage to blow up the whole financial system first.
