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Paul White, Associated Press
Spain's Economy Minister Luis de Guindos speaks during a news conference in Madrid, Thursday, Feb. 2, 2012. Spain plans to enact a bank sector reform plan that will force lenders to set aside euro 50 billion ($65.5 billion) in provisions to cover their exposure to toxic real estate loans and assets.

MADRID — Spanish banks must raise an additional €50 billion ($65.5 billion) to cover their exposure to toxic real estate loans accumulated during a construction boom that went bust with the financial crisis, according to new regulations unveiled Thursday.

Banks unable to meet the new provisions to cover troubled holdings will have the option of presenting merger plans to the government by May and could get government assistance, said Economy Minister Luis de Guindos.

Cleaning up the toxic real estate assets of Spain's ailing banking system is a key issue in the drive by the new center-right government to restore investor confidence in the eurozone's fourth largest economy. Banks that want to meet the new provisions without merging will have until the end of the year to do so, de Guindos said.

Spanish banks have about €175 billion ($230 billion) in troubled holdings, and de Guindos said the new rules for banks would prompt many to reduce the value of their property holdings — leading to price drops for real estate that saw stunning increases from the mid-1990s until the crisis hit in 2008.

The reform plan is similar to a 2009 push that forced banks to increase provisions against real estate holdings and bad loans to 30 percent and set off a wave of mergers, but de Guindos said the new rules to protect banks from losses will boost that figure to as much as 80 percent.

The cabinet of Prime Minister Mariano Rajoy plans to approve the measures on Friday. They will be sent to Parliament for final approval, but passage is guaranteed because Rajoy's Popular Party has an absolute majority.

Daniel Woolls in Madrid contributed to this report.