How the euro zone deals with failing banks | bambinoides.com " />

How the euro zone deals with failing banks

 

ALMOST a decade after the global financial crisis, aftershocks rumble on. This month Banco Popular, Spain’s sixth-biggest bank by assets, was bought for a symbolic €1 ($1.10) by Santander, the largest, in a takeover organised by European authorities. The “resolution” of Popular was the first of a failing euro-area bank under new procedures that came into effect in 2015. How did the system fare?

Popular had been suffering since the collapse of Spain’s national property bubble in 2008. Like other European countries, Spain was slow at first to deal with the crisis. It borrowed €41bn from European funds in 2012 to bail out its banking system—pouring a good portion of that into Bankia, a big savings bank. But its banking system is now much the healthier for a consolidation co-ordinated by the state, in which several local lenders were rolled into stronger institutions. A total of 55 banks has been reduced to a dozen or so, and more mergers may follow. Faster economic growth—just now, the fastest of any large economy in the euro zone—helps the banks too. Yet problems remained, notably at poor Popular. It did not share in the bail-out, instead raising equity from shareholders three times between 2012 and 2016. That strategy failed.

When the end came Popular was hoping to find a buyer. But depositors were withdrawing money fast and its share price fell by half within four days. On the evening of June 6th, seeing Popular’s liquidity draining away, the European Central Bank (ECB), which supervises banks in the euro area, declared that the lender was “failing or likely to fail”. A separate body, the Single Resolution Board (SRB), then took charge. Seeing no alternative, the next morning the SRB announced the Santander deal. Popular’s shareholders were wiped out. So were some bondholders, including owners of “contingent convertible” (“coco”) debt, which is turned into equity if catastrophe strikes.

The Spanish and European authorities, and Santander, declared the resolution a success, and probably rightly. Technically, it went like clockwork, despite the apparently cumbersome division of labour between the ECB and the SRB: Popular changed hands overnight. No taxpayers’ money was needed. The coco bonds, a post-crisis creation, worked as they were supposed to: swapped for equity and written down if need be. Owners of coco (and other) bonds now know, if they did not already, that the threat of a total loss is real. Prices of subordinated debt in two smaller Spanish banks tumbled after Popular’s failure; short-selling of the shares in one of them was banned. Not everyone, it is true, is convinced. Investors may wonder why regulators failed to spot the depth of Popular’s troubles sooner. Reports say some bondholders, believing that the ECB and SRB were too hasty, are contemplating whether to sue. The resolution is not, so to speak, wholly popular.

 


The Economist | economist.com


The views expressed are not necessarily those of the publisher or bambinoides.com. Images accompanying posts are either owned by the author of said post or are in the public domain and included by the publisher of the blog bambinoides.com on its initiative.

Leave a comment

You must be Logged in to post comment.

© 2012-2017 - Copyright - bambinoides.com is not liable for the content of external web pages

© 2012-2017 - © Copyright / Copyright Disclaimer Under Section 107 of the Copyright Act 1976, allowance is made for "fair use" for purposes such as criticism, comment, news reporting, teaching, scholarship, and research. Fair use is a use permitted by copyright statute that might otherwise be infringing. Non-profit, educational or personal use tips the balance in favor of fair use. / Derechos Reservados & CLÁUSULA DE EXENCIÓN DE RESPONSABILIDAD: bambinoides.com (El BLOG), tiene un carácter divulgativo, informativo y de entretenimiento, poniendo a disposición de todos, informaciones, noticias, reportajes, material audio-visivo y gráfico de contenido variado y sugestivo con el único interés de provocar un sano debate entre amigos e interesados. De no ser especificado, los artículos, comentarios y/o introducciones son escritos y propiedad de Antonio-"Bambino" Maldonado-Boschetti (indistintamente con siglas AMB - ◊◊B◊◊). Además, en EL BLOG se evidencian vínculos y se divulga información originaria de numerosas fuentes por lo que ni El BlOG ni Antonio-"Bambino" Maldonado-Boschetti son particular y específicamente responsables del contenido de aquellas.-- USO JUSTO (Fair Use): Descargo de Responsabilidad: bambinoides.com y/o Antonio-"Bambino" Maldonado-Boschetti (AMB/◊◊B◊◊) no es (son) propietario de la mayor parte de los audios-vídeos que forma parte de la Galería de Vídeos de bambinoides.com los cuales pertenecen a numerosos autores, artistas y/o productores. Aviso y reclamo que los derechos de autor bajo la sección 107 del Copyright Act 1976 (USA) permiten el uso y divulgación de este material con “USO JUSTO” para propósitos tales como crítica, comentario, noticias, enseñanza, becas e investigación. El “USO JUSTO” (Fair Use) es un uso lícito y permitido por la Ley de Derechos de Autor, que de lo contrario podría constituir una violación. El uso sin fines de lucro, educativo, noticioso o informativo, o personal inclina la balanza a favor del “uso justo" por parte de bambinoides.com.-- La información y el contenido "multimedia" publicado por EL BLOG son de carácter público, libre y gratuito. Pueden ser reproducidos con la obligatoriedad de citar la fuente: http://www.bambinoides.com y a cada autor en particular. -- Los comentarios y reacciones de los lectores publicados en los "posts" son de la entera responsabilidad de quien los emite; EL BLOG intenta implementar un mecanismo de auto regulación y/o puede decidir no publicar comentarios que constituyan abuso o que lesionen el buen gusto y los derechos de otros. -- Se pueden enviar colaboraciones gratis directamente a bambino@bambinoides.com quien se reserva el derecho de publicación.
All photos accompanying posts are either owned by the author of said post or are in the public domain and included by the blog bambinoides.com on its initiative.

Creative Commons Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License. Bambinoides.com está disponible bajo una licencia “Creative Commons” Reconocimiento-No comercial 4.0. Cualquier reconocimiento debe ser a bambinoides.com y a cada autor/publicación en particular.

WP-Backgrounds Lite by InoPlugs Web Design and Juwelier Schönmann 1010 Wien
Confrontando la información, - el pasado y el presente...
"Estudia el pasado si quieres pronosticar el futuro" (Confucio)
“La historia es en realidad el registro de crímenes, locuras y adversidades de la humanidad” (E. Gibbon)