BANKIA SA 
By Economy Minister Luis de Guindos however said the government had "absolutely" no plans to shut down any bank.
Four of the Spanish banks benefiting from an up to 100-billion-euro European bailout could face being wound down if the European Commission concluded that the cost of their recapitalization is higher than the cost of an orderly resolution.
They are Bankia (>> Bankia SA), CatalunyaCaixa, NovaGalicia and Banco de Valencia (>> Banco de Valencia SA). Others could soon follow, banking sources said.
Brought in to oversee the restructuring of Spain's banking sector over the next few months, Bank of Spain governor Luis Maria Linde, told a parliamentary hearing: "If an entity is not strong enough to ensure its future, it will have to face an orderly process of resolution or liquidation."
European Union competition commissioner Joaquin Almunia, raised that possibility for the first time in June after Spain sought the lifeline for its lenders, crippled by bad debts from a burst real estate bubble.
But Spanish authorities dismissed the idea.
Linde was picked last month by the government to head the Bank of Spain at a time when the reputation of the institution has been damaged by its failure to anticipate the crisis.
He is said to be close to Economy Minister De Guindos.
Spanish authorities as well as European Union documents had so far only referred to a 'process of resolution' for Spanish banks, leaving unresolved an ambiguity about whether it meant winding down an entity or just downsizing it before a sell-off.
On Tuesday, Linde made clear he took the term to mean a shutdown.
He also said the recapitalization plans presented by Spanish banks should be realistic and carried out in the short term. This contrasted with earlier statements from the Spanish authorities that the process could drag on for months.
He added that the country's biggest lenders would not need any external help to strengthen their capital positions.
Under state-aid rules, the European Commission is allowed to refuse a request to rescue a bank if it considers the lender too costly to save - effectively forcing it to be wound up.
Spain is awaiting final approval from the European Commission for restructuring plans for three banks rescued by the state: NCG Banco (NovaGalicia), CatalunyaCaixa and Banco de Valencia. It is also in talks over Bankia which still has to formally present its recapitalization plan.
NCG Banco and CatalunyaCaixa denied last month they would be closed. Banco de Valencia said it was not aware of any such plan.
(Writing by Julien Toyer; Editing by Nigel Davies, John Stonestreet)
By Carlos Ruano
