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Spain Banking Sector Shaken By Report Of Bank Run

Greek president Karolos Papoulias warned party leaders during unsuccessful coalition talks that about ⿬700 million ($898 million) in deposits have flown out of Greek banks since the May 6 elections, according to a report from Greece's central bank governor, George Provopoulos

"The situation in the banks is very difficult," Papoulias said according to a transcript of the meeting's minutes released by his office. "Mr. Provopoulos told me that of course there is no panic, but there is great fear which could turn into panic."

Fitch ratings agency on Thursday downgraded Greece by a notch to the lowest grade for a country that is not in default, citing the risk that the country may leave the eurozone if the next elections do not produce a government that supports the bailout.

Earlier this week, rival agency Moody's downgraded the debt ratings of 26 Italian lenders as they struggled with the effect of the country's weak economy and government austerity measures. The move means Moody's now ranks Italy's banks lower than most of their Western European peers.

Meanwhile Spain's Treasury on Thursday managed to sell three kinds of bonds, two maturing in 2015 and one in 2016, for a total of ⿬2.5 billion ($3.18 billion). For the three-year note, the only one which was comparable to previous sales, Spain's borrowing rate ⿿ or yield ⿿ rose to 4.87 percent, from 4.04 percent in a similar auction on May 3.

On the secondary market, where issued bonds are traded freely, the interest rate on Spanish 10-year bonds stood at a worryingly high 6.29 percent. It has risen sharply from below 5 percent in March and is edging toward the 7 percent mark that is considered unsustainable in the longer term. Greece, Ireland and Portugal sought bailouts when their 10-year bond yields remained stuck above that level.

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