European Central Bank officials signaled they would oppose any attempt to fund the €19 billion ($23.8 billion) recapitalization of Spain's Bankia SA BKIA.MC -16.25% via the central bank's lending facilities, according to people familiar with the situation.
Spain has pledged the rescue of Bankia, its third-largest lender by assets, at a time when its finances are stretched to their breaking point and the government is desperately trying to ward off an international bailout.
Spain's own bailout fund has only about €9 billion left and, though it can be replenished through debt issuance, recent auctions have seen soaring borrowing costs and falling demand.
ECB officials have repeatedly said it is up to governments to fix problems in their domestic banking systems, not the ECB. Officials may also fear that such a step would set a precedent for other cash-strapped governments with banking problems.
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