The European Union has warned the Spanish government against trying to prevent banking consolidation it says is needed to create strong lenders, after Madrid announced a ministerial review of BBVA's bid for rival Sabadell .

The European Commission is warning the Spanish government that it does not have the power to block BBVA’s €11bn hostile bid for rival lender Sabadell. The Spanish government on Tuesday ordered that the bid be subjected to a full review by cabinet ministers, the latest setback in a year-long attempt to unite two of the country’s largest banks.

The offer for the Catalan lender was to be referred to the cabinet on general-interest grounds other than competition, citing the potential impact on the sector, territorial cohesion and social policy.