RENEE MONTAGNE, HOST:
One of Spain's most troubled banks announced, this week, that it's laying off half of its staff - after being sold to a competitor for just one euro. Crippled by the housing market's collapse, Spanish banks are living off bailout loans from Europe. Those loans come with strings attached, including massive layoffs and strict new regulatory measures by Spain's central bank.
From Madrid, Lauren Frayer explains.
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LAUREN FRAYER, BYLINE: Two years ago, this TV ad heralded the merger of seven Spanish banks, creating Bankia - Spain's biggest real estate lender. Across your TV screen scrolled the words: Today is the start of something big.
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FRAYER: Now we know, Bankia was too big - and so was Spain's entire banking system. Bankia failed and was taken over by the government last year after the property market crashed. At the time, there was one bank branch for every couple hundred people in Spain.
JOSE ENRIQUE CONCEJO: We have for many, many years, been the most over-branched country in the world. That is changing, and that has to change.
FRAYER: Jose Enrique Concejo is the head of investment banking for Societe Generale here in Madrid. He says new Spanish banks kept popping up because real estate lending was so profitable. But not anymore.
CONCEJO: Depending on who you ask, the system has to reduce by at least 25 percent, maybe more, in terms of branches. And that applies, of course, to the employees.
FRAYER: About 55,000 bank employees will lose their jobs in the fallout. Spanish banks had to promise these layoffs in exchange for $50 billion in bailout loans from Europe so far. And the Bank of Spain had to promise tougher regulation. It plans to embed inspectors in the top 16 Spanish banks.
Regulators admit that during the boom years, they felt pressure to look the other way while lenders racked up risky debt, says Jose Ignacio Torreblanca, who heads the European Council on Foreign Relations here in Madrid.
JOSE IGNACIO TORREBLANCA: The regulators and the inspectors in the bank, they felt alone and they felt not backed by the government, in doing something which they all knew they had to do. But for political and economic reasons, nobody was interested in doing it.
FRAYER: There's a lot of anger in Spain now, at the banks for gambling in real estate, and at the government for failing to stop them. People are wondering what this is going to cost them.
Protesters gather often in front of the central bank's headquarters. And around the corner, Mario Gonzales waits in line outside his bankrupt mortgage lender, Bankia, with a foreclosure notice in hand. He says banks were so solicitous, in the boom years.
MARIO GONZALES: (Through Translator) Back then they treated you like a prince, like a king. When we had money and jobs, they would say, welcome. Come in, sit down. How much money do you need to buy your house? And the bank knew that we'd never be able to pay back that money. But they gave it to us anyway.
FRAYER: Now his house is being repossessed. But Spanish law requires that he still pay his mortgage. He's out of work, but if he finds a job, his salary will be seized by the bank for years to come.
Again, Torreblanca.
TORREBLANCA: People now feel that they've been entrapped into a system from which the banks can escape. They can be bailed out. But they, as citizens, cannot be bailed out. They cannot just cancel their debts and go, you know, home or elsewhere.
FRAYER: With this massive restructuring, Spanish banks may begin to pay for the mistakes of the past. But bank tellers, homeowners and the European taxpayer will also pay dearly.
KIRK SIEGLER, BYLINE: For NPR News, I'm Lauren Frayer in Madrid.