Spain prepares rescue of Bankia Spain is planning a state bail-out of Bankia, the country's third biggest bank by assets, in a move likely to involve the injection of billions of euros of public money into the troubled lender. In an abrupt reversal of policy, the Spanish government, which had previously insisted that no additional state money would be needed to clean up the country's banking sector, confirmed that an intervention was being prepared. Soon after the news broke, Rodrigo Rato, Bankia's executive chairman and a former International Monetary Fund managing director, resigned from the bank that had been formed in 2010 out of a merger of seven Spanish savings banks, or cajas. Mariano Rajoy, Spain's prime minister, said in a radio interview that the government would consider injecting state funds into the banking sector if needed. The bursting of Spain's property bubble has seen the level of bad loans as a proportion of total lending rise to the highest level in 18 years, leaving banks managing vast portfolios of repossessed and unsold real estate, and choking off credit to an economy that is suffering its second recession in three years. The government can deploy the state-backed Frob bank restructuring fund to pump capital into Bankia and is considering the use of contingent convertible bonds, known as cocos, an economy ministry source said. The official would not say how much money would be needed. But Spanish press reports indicated that Bankia could receive €7bn-€10bn of additional capital. Mr Rato, a former finance minister who was placed in charge of Bankia in spite of having little experience as a commercial banker, announced that he had proposed José Ignacio Goirigolzarri, former chief executive of rival BBVA, as his successor. Last month, the IMF singled out Bankia as the largest risk to the stability of the Spanish banking sector, with the fund recommending that it and other banks take "swift and decisive measures to strengthen their balance sheets and improve management and governance practices." Part of the bank was listed on the Madrid stock market last year, raising €3.3bn from private savers and Spanish institutions - a move criticised by many analysts and investors for failing to recapitalise Bankia sufficiently. Two of Bankia's constituent cajas, Caja Madrid and the Valencian Bancaja, have historically had strong ties to the ruling centre right Popular party of Mr Rajoy. Bankia shares, which slid 3 per cent on the news to €2.38, have fallen 36.5 per cent since their listing last summer.