Spain to give Deposit Guarantee fund $3.2b to help investors in risky bank debt

MADRID (Reuters) - Spain will ask its healthy banks to make an extraordinary contribution of 2 billion euros (S$3.2 billion) to the country's Deposit Guarantee fund to help compensate 300,000 investors in risky bank debt who lost money in the country's financial crisis.

Five years ago, just as Spain's economy entered a prolonged crisis, banks sold some 8 billion euros worth of risky hybrid debt instruments known as preference shares. Many of the investors were depositors who thought they were buying a low-risk deposit.

"The Deposit Guarantee Fund will ask all of the financial institutions to make an extraordinary contribution, of 3 (euros) per every 1,000 in deposits. That means a quantity of approximately 2 billion euros," Economy Minister Luis de Guindos said at a news conference on Friday, March 22.

Smaller banks and weaker banks would be exempted from the extraordinary contribution, he said.