Record Withdrawals from Spanish Banks in July

Individuals, companies and investment funds withdrew money from Spanish commercial banks by a record amount in July, according to data released by the European Central Bank (ECB).

Deposits in Spanish banks dropped 4.7% in July from June to €1.51 trillion euros. The €75bn decline was the sharpest monthly drop in Spain since the ECB started keeping such data in 1997, twice the previous monthly record, and brought the total deposit loss over the past year to 10.9%, replicating the pattern seen in Greece as the crisis spread.

It is unclear how much of the deposit loss was capital flight, either to German banks or other safe-haven assets such as London property. The Bank of Spain (BoS) attempted to downplay the fall, which it said was distorted by the effect of tax payments and by the expiry of securitised funds. “In July, deposits tend to fall due to seasonal factors because families take out money for their summer vacation and businesses have to pay taxes,” added a BoS spokesman.

However, in July 2011 deposits fell by only 1.5% and in the previous year they rose 1.3%, suggesting some of last month’s far sharper fall could be due to capital flight. Julian Callow from Barclays Capital added that the deposit loss was still €65bn even when adjusted for seasonal factors: “This is highly significant. Deposit outflows are clearly picking up and the balance sheet of the Spanish banking system is contracting,” he said.

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