Tumbling interest rates in Europe have put some banks in an inconceivable position: owing money on loans to borrowers, The Wall Street Journal reported. At least one Spanish bank, Bankinter SA, the country’s seventh-largest lender by market value, has been paying some customers interest on mortgages by deducting that amount from the principal the borrower owes. The problem is just one of many challenges caused by interest rates falling below zero, known as a negative interest rate.

Southern European banks are facing the loss of more than 40bn of capital, after the European Commission launched an informal investigation into the deferred tax assets that many have been using to bolster their capital ratios. The EU legislator is requesting information from Greece, Italy, Portugal and Spain on the guarantees they provide on banks' DTAs to determine whether they represent state aid, which is illegal under European law. Most other countries do not provide such guarantees.

Greece’s new government may not have achieved much in its first two months, but it did succeed last week in establishing a parliamentary inquiry into the circumstances surrounding the country’s bankruptcy, The Wall Street Journal reported. Oddly, this inquiry will only be allowed to investigate decisions taken since October 2009 following the election that brought George Papandreou’s Pasok government to office.

German lenders should prepare to write off at least half the value of the bonds they hold in Austrian 'bad bank' Heta Asset Resolution AG, a Bundesbank board member said in an interview published on Friday. "I think this situation has to be taken seriously by the German banks," Andreas Dombret told news agency Bloomberg in an interview in Johannesburg, where he addressed the local chamber of commerce. "It's advisable and recommendable to take provisions on this, and ... I would say it should be a minimum of a 50 percent provision for potential losses," he added.

Greece repaid €450m it owed the International Monetary Fund on Thursday, sending bond yields sliding as investors’ showed relief that it had met its latest debt deadline, the Financial Times reported. Yields on the country’s shortest dated notes declined, with three-year bonds declining 54 basis points to 20.08 per cent and five-year bonds falling 30 bps to 14.98 per cent. The 10-year yield, which moves inversely to its price, slipped 18 basis points to 11.03 per cent. A central bank official confirmed that the payment to the IMF had been made.

Property developer Martinsa Fadesa said on Thursday a court had begun its liquidation, seven years after it became one of the most notable casualties of Spain's real estate crash and filed for bankruptcy, Reuters reported. The liquidation, after a struggle with creditors over a debt pile of close to 7 billion euros ($7.52 billion), is one of the country's biggest ever bankruptcies.

Investors holding $10 billion of Ukrainian debt have joined forces to develop a restructuring plan for the country’s debt that won’t involve a reduction in the principal value of the bonds, according to financial and legal advisers of the group, The Wall Street Journal reported.

The British bank HSBC said on Thursday that it had been placed under formal criminal investigation by French magistrates examining whether its Swiss private bank assisted wealthy clients to avoid taxes, the International New York Times reported. Investigating magistrates in France have been conducting an inquiry into whether HSBC Private Bank (Suisse) helped individuals avoid their tax-reporting requirements from 2006 to 2007. In November, the Swiss private banking unit was separately placed under formal investigation.

A long-running investigation into Wall Street’s manipulation of interest rates is heading into a stark final chapter as authorities around the globe push Deutsche Bank to pay a record penalty and accept a criminal guilty plea for the unit at the center of the case, the International New York Times DealBook blog reported. Deutsche Bank, Germany’s largest financial institution and one of several banks linked to the gaming of interest rates, is in talks to resolve the case as soon as this month, according to people briefed on the matter.

Ireland could offer itself as a home to some of Britain’s wealthiest residents if a Labour government was elected in the UK and followed through on threats to abolish a rule which allows some people to mitigate their UK tax liability, the Irish Times reported. Labour leader Ed Miliband has declared that, if elected in the forthcoming election, he would end the regime which allows those who are resident, but not domiciled in the UK, to avoid paying tax on their worldwide income.