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MADRID - Spain's distressed banks need about 40 billion euros ($50 billion) in new capital, the IMF warned Friday, ramping up the pressure for a huge EU bailout amid fears of widespread contagion.
Senior finance ministry officials from the 17 eurozone nations may hold weekend talks to prepare the nuts and bolts of a Spanish bank bailout should Madrid cry for help, diplomatic sources told AFP.
When they do meet they will be able to consider new stress tests carried out by the International Monetary Fund, which showed that while Spain's top two banks -- BBVA and Banco Santander -- remain solid, the rest of the banking sector is struggling.
If the current stress on the system continues "the largest banks would be sufficiently capitalised to withstand further deterioration, while several banks would need to increase capital buffers by about 40 billion euros," the IMF said in a statement.
Even that would not be enough to cover other restructuring costs and loan portfolio downgrades, the statement said.
If Madrid feels it has no option but to ask for help, it would mean the eurozone sovereign debt crisis has defied the authorities' desperate attempts to limit the need for rescues to Greece, Ireland and Portugal.
It would also see the eurozone in uncharted waters after two years of turmoil -- Spain's economy is the fourth-largest in the eurozone and more than twice the size of Greece's, Ireland's and Portugal's combined.
"The 'Euro working group' is on stand-by, ready to meet this weekend should there be a request from Spain," a source said.
Dutch Finance Minister Jan Kees de Jager said he could not exclude the possibility of a weekend meeting while European Central Bank Vice President Vitor Constancio called Friday for quick action.
"Spanish banks have recapitalisation needs, therefore a solution must be found quickly to calm the markets," Constancio said.
Media reports earlier said Spain could ask for a bank rescue - estimated by Fitch Ratings at up to 100 billion euros ($125 billion) - as early as Saturday, with the Eurogroup then working on the details in a conference call.
US President Barack Obama turned the screw yet tighter Friday, saying Europe must act swiftly to fix its banking woes or pay the price.
"In the short term they have got to stabilise their financial system. Part of that is taking clear action as soon as possible to inject capital into weak banks," he told reporters.
"Just as important, leaders can lay out a framework and a vision for a stronger eurozone, including deeper collaboration on budgets and banking policy. Getting there will take some time, but showing the political commitment to share the benefits and responsibilities of an integrated Europe will be a strong step," he said
'Signs are growing Spain will submit a request for financial help'
Spanish financial markets, with stocks up nearly two percent Friday, were betting on an imminent bailout restricted to the banking system, a model that would save Spain from the humiliation of a Greek-style rescue with all the painful austerity conditions attached.
Moody's ratings agency warned that a Greek pullout from the eurozone -- something being mulled in European capitals -- could lead to downgrades of the eurozone's top-rated governments, including economic powerhouse Germany.
Moody's also cautioned that an EU rescue of Spain's banking sector could force a cut to Spain's sovereign rating due to the "increased risk to the country's creditors".
Fellow agency Fitch slashed Spain's rating by three notches to BBB from A on Thursday, citing ballooning estimates of the cost of a banking crisis, mushrooming debt and a deepening recession.
A bank rescue would also push up the state debt, Fitch predicted, warning that gross general public debt would likely peak at 95 percent of total economic output in 2015.
In downgrading the outlook for Spain's job-scarred economy, Fitch warned that it no longer expected the country to emerge in 2013 from a recession in which 24.4-percent of the workforce is out of a job.
A string of top European policymakers refused to confirm plans for a weekend telephone conference call but most said Europe was ready to spring into action the moment that it was required.
"No decisions of any kind have been taken," Spain's Deputy Prime Minister Soraya Saenz de Santamaria told a news conference, stressing that Madrid was waiting for an audit of the banks' balance sheets.
German Chancellor Angela Merkel also refused to comment on the reports. "We have everything we need for a stable eurozone and it is up to the individual countries to come to us. That has not happened," she said.
A rescue might soothe investors by resolving many questions over a banking sector crippled by its massive exposure to a property market that collapsed in 2008.
The Bank of Spain -- which got a new head Friday in the shape of Luis Maria Linde - said an independent audit of the banking system, examining how much extra capital is needed, would be submitted by June 21.
Linde, 67, replaces Miguel Fernandez Ordonez, who stepped down last month.