Size of Spanish banking crisis revealed as British banks brace for downgrade Bankia, Spain's fourth biggest lender, has already been forced to seek government support in the Spanish banking crisis. Britain's banks were facing downgrades of their credit ratings on Thursday night - just hours after the markets began digesting an admission by Spain that its own banks might need up to €62bn (£50bn) of bailout money to see them through the next three years. The result of an independent audit of Spain's banks put the gap in their finances at between €16bn and €62bn - close to the €50bn calculated by the International Monetary Fund (IMF) two weeks ago. The UK's banks are expected to be among a number being downgraded by Moody's following a four-month review of the viability of investment banking businesses and the crisis in the eurozone. In February, Moody's warned that bailed-out Royal Bank of Scotland faced a one-notch downgrade, and Barclays and HSBC up to a two-notch downgrade. The UK's other bailed-out bank, Lloyds Banking Group, is also facing a downgrade under a simultaneous review of more than 100 financial institutions' financial health as a result of the eurozone crisis. A downgrade can push up the cost of borrowing for a bank and require it put up extra collateral for some existing loans. RBS, for instance, has estimated that a one-notch downgrade could force it to put up an extra £12.5bn in collateral. Spain's banks were downgraded by Moody's in May amid concerns about the strength of the banking system, and Thursday's independent assessment of Spain's banks will be used by the government in Madrid to calculate the final sum it will ask for when it makes its formal petition for bailout money from Europe's rescue funds. The figures were well below the maximum of €100bn that eurozone governments have offered Spain to bail out those banks that are still laden with toxic assets left over from a property bubble that burst four years ago. Officials said that the formal petition would come within days, though they did not say what the final figure would be or whether the government would add a security cushion. The studies, carried out by auditing companies Roland Berger and Oliver Wyman, covered 14 banking groups that account for 90% of the sector in Spain. Officials hoped that the figures would help calm markets, which responded to the announcement of the bailout two weeks ago by putting further pressure on Spain's state borrowing costs. "We hope this will be definitive," said the secretary of state for the economy, Fernando Jiménez. We have a generous backstop and are already carrying out a very aggressive provisioning. Markets had lost confidence in Spain's ability to judge its own banking needs after the two rounds of provisioning ordered so far this year failed to prevent the downfall of Bankia, the country's fourth biggest lender, which had to be part-nationalised. Bankia's new management has already said it needs an injection of €19bn of capital. "There was some uncertainty about the resistance of the system," Jiménez admitted. This is an additional exercise in transparency. Spain's borrowing costs had been falling over the past three days but on Thursday the country still had to pay its highest interest rate for 16 years to raise money over three and five years. The auditors did not produce figures for individual banks, though officials insisted that the study showed that the biggest three lenders - Santander, BBVA and Caixabank - would not need any injection of public capital. A second group of banks may be able to raise capital themselves or might prefer to ask for bailout money. A third group of lenders is made up of former savings banks, like Bankia, that have already received state support. Analysts welcomed the results, but warned they were based on figures that are already six months out of date, in a country that is now in recession. "The decision to bring in independent consultants to pore over the loan books of banks has injected much-needed credibility into the restructuring of Spain's banking sector," said Nicholas Spiro of Spiro Sovereign Strategy. The perception among foreign investors that the severity of the problems in the banking system are not being recognised is no longer justified. Economy minister Luis de Guindos, who was in Luxembourg with eurozone colleagues to discuss Spain's request, said a formal application would be made within a few days. Eurozone finance ministers offered Spain a bailout loan of up to €100bn on 9 June. The terms of the loan - for which the Spanish government, rather than the banks, will ultimately be responsible - still have to be negotiated.