Spain will be forced to give up most of the control over its banks to European institutions—and will be required to impose losses on local investors—in return for a bailout of as much as €100 billion ($123 billion), according to the draft agreement accompanying the rescue, The Wall Street Journal reported. The requirements, some of which could prove to be explosive politically, suggest that holders of junior bonds and preferred shares issued by bailed-out banks will incur losses.

Euro area finance ministers agreed early Tuesday on the terms of a bailout for Spain's troubled banks, saying that €30 billion ($36.88 billion) can be ready by end of this month, the International Herald Tribune reported on an Associated Press story. The finance ministers for the 17 countries that use the euro as their official currency will return to Brussels on July 20 to finalize the agreement, having first obtained the approval of their governments or parliaments, eurozone chief Jean-Claude Juncker said early Tuesday morning.

Spain is ready to create a single “bad bank” to house the distressed assets of its teetering financial sector, as it prepares to finalise terms of an EU bailout that is dividing the eurozone and spooking markets, the Financial Times reported. Eurozone finance ministers gather in Brussels on Monday aiming to agree broad conditions for Spain to unlock up to €100bn of loans to recapitalise its banks, as well as addressing the fraught issue of how the risks are shared in the long term.

Euro zone experts discussed a Finnish proposal for Spain and Italy to issue covered bonds to make their debt more attractive and to allow the euro zone's permanent bailout fund to bid at primary auctions of the two countries, officials said on Thursday, Reuters reported. The aim of the Eurogroup Working Group of deputy finance ministers and treasury officials is to find a way to lower financing costs for the two sovereigns that European Union leaders meeting in Brussels could discuss later.

The eurozone group of nations insisted Wednesday that the rescue loans for Spain’s troubled banks would be channeled through the national government, adding to its sovereign debt. Madrid had petitioned to have it paid directly to the banks to not raise concerns over its public debt, The Washington Post reported on an Associated Press story. A Eurogroup statement said the aid would be given to Spain’s bank restructuring fund, or FROB, and that the Spanish government would “remain fully liable” for it.

Moody's Investors Service lowered its long-term ratings on 28 Spanish banks by one to four notches, pointing to the reduced credit-worthiness of Spain and expectations that the banks' exposure to commercial real estate will likely cause higher losses, The Wall Street Journal reported. Spanish bank stocks tumbled Monday on speculation about the downgrades.

Spain on Monday will formally ask its eurozone partners for up to €100bn to recapitalise its banks, opening a week of diplomatic activity that will culminate in a European Union summit on Thursday night to address the region’s damaging sovereign debt crisis. Luis de Guindos, Spanish economy minister, and his colleagues in the 17-nation eurozone say details of the loan for Spain and the conditions attached should be agreed in a memorandum of understanding to be discussed by eurogroup ministers on July 9.

Spain said its crisis-hit banks will need as much as €62 billion ($78.75 billion) in new capital to absorb losses from a real-estate meltdown, as the International Monetary Fund warned that the euro-zone plan to aid the country may not work, The Wall Street Journal reported. Spanish lenders have been pummeled by a dive in property prices that hasn't yet bottomed out, as loans to households are going bad amid record-high unemployment.

The dismal market reaction to the euro zone's promise to pump as much as €100 billion ($125.75 billion) into shaky Spanish banks—underlined by the high yield the government paid on Tuesday to raise short-term funds—is prompting a rethinking of the rescue's mechanics, which have heightened worries over Madrid's ability to repay its debts, The Wall Street Journal reported.

The brief afterglow from Greece's vote Sunday to try to remain in the euro was quickly extinguished by a cascade of bad news out of Spain that again rattled faith in the currency bloc's ability to support its most troubled members, The Wall Street Journal reported. Fresh data from Spain's central bank showed the country's lenders were sitting on the highest level of bad loans in 18 years and that their deposits continued to leak away.