Lenders Bankia, NCG Banco, Catalunya Banc and Banco de Valencia will need 37 billion euros ($48 billion) to be recapitalized and the banks' bondholders will face losses, EU Competition Commissioner Joaquin Almunia said.

The approval allows the euro zone to disburse the funds from its permanent ESM bailout fund and could mark a turning point in a banking crisis that has dragged Spain into recession after its real estate bubble burst. Spain was given approval to receive up to 100 billion euros from the ESM in June.

Wednesday's announcement sets down one of the most far-reaching restructuring plans of any European banking system ordered by the Commission since the start of a banking crisis in mid-2007 with the near collapse of German lender IKB.

"The approval of the restructuring plans of BFA/Bankia, NCG, Catalunya Banc and Banco de Valencia is a milestone in the implementation of the Memorandum of Understanding between euro area countries and Spain," EU Competition Commissioner Joaquin Almunia said, referring to Spain's euro zone bank bailout.

"What we've approved today means that the funds for the European Stability Mechanism can be disbursed," Almunia told a news conference. "The total amount adopted today is 37 billion euros."

The European Commission said Banco de Valencia would be sold and integrated into Caixabank, and the other three banks would need to cut their balance sheets by more than 60 percent over the next five years.

In what potentially signals thousands of job losses in Spain, Almunia said the nationalized banks would have to close up to half their branches during a five-year overhaul process.

There will be a pay cap and a coupon payment and acquisition bans on the banks during their restructuring period. The cost to hybrid and subordinated bondholders will come to about 10 billion euros, Almunia said.

The Commissioner said he would decide on other Spanish banks on December 20.

(Reporting by Foo Yun Chee and Robin Emmott; editing by Luke Baker)

• A Permanent Economic Emergency