Five cajas failed Europe-wide stress tests on banks last year. The Bank of Spain has forced them into a round of mergers, reducing their number from 45 to 17 last year. High levels of bad property loans at the cajas are seen as a major risk for Spain as it slashes its budget deficit to stave off fears it will need an Irish or Greek-style rescue from the European Union and International Monetary Fund. Estimates of the cost of recapitalising the savings banks range from €17bn (£14.4bn) to €120bn, with consensus falling in the €25bn to €50bn range, according to Reuters. Economists say Spain could afford that level of rescue without seeking outside aid.The banking sector has so far set aside €88bn to cover losses on total loans of €439bn to real estate and construction. Spain's borrowing costs have soared amid worries that the sovereign debt crisis that forced Greece and Ireland to seek bailouts will spread to Portugal and then Spain. A budget deficit of 9.3% of GDP in 2010 and stagnant growth have added to the worries, though the government is hitting deficit reduction targets and pledges pension and labour reform shortly. Analysts welcomed the promise of caja recapitalisation. "This underpins hopes that Spain is now on the right track," Commerzbank strategist David Schnautz told Reuters.

No bailouts - Barklays

Barclays boss Bob Diamond has said that taxpayers should not bail out banks, and that those banks that get into trouble should be allowed to fail. "It is not OK for taxpayers to bail out banks," Mr Diamond told a Treasury Committee hearing. On bonuses, he said that Barclays "paid for performance, not for failure". The government has called on banks to pay smaller bonuses, with Deputy Prime Minister Nick Clegg urging them to be "sensitive to the public mood". Mr Diamond said that Barclays had yet to decide on bonus payments to its staff for this year. He added that the "majority" of the amount paid in bonuses went to investment bankers, rather than staff in the retail banking arm. "We are sensitive, we are listening [to calls for restraint], and there is no lack of effort in recognising the importance of this issue and being responsible [over bonuses]," he said. He said that Barclays had "no intention of paying more in bonuses than is necessary". However, he said the bank had to balance these responsibilities with "the environment we operate in", referring to the fact that if Barclays were to unilaterally reduce bonuses, top staff could leave to join competitors. He said he had waived his bonus for the past two years but would wait until he was offered one this year before deciding whether to accept it.