Europe has at last got a bank rescue right, says Lionel Laurent on Bloomberg. Regulators have pushed Spain’s moribund Banco Popular “into the arms” of its giant rival Banco Santander, which will now tap shareholders for €7bn in capital to bolster Popular’s balance sheet after scooping it up for €1.
The restructuring imposed losses on several groups of investors. Popular’s stock and bondholders forfeited about €3.3bn, while €2bn in junior bonds and contingent convertible debt was converted into equity and written down to zero or handed to Santander. Crucially, however, no taxpayers’ money was required.
So this first major action by the EU’s Single Resolution Board, set up in 2015 to deal with euro-area bank failures and wind them down with minimal impact on taxpayers and financial stability, must count as a success. “If there was ever any doubt that European bank regulators would flex their muscles to prevent wider financial contagion, there is none now,” says Lex in the Financial Times.
This “shows just how much healthier European bank regulation has become”, says Martin Sandbu, also in the FT. The eurozone’s key problem used to be “self-fulfilling and self-inflicted ‘death spirals’ between governments and national banking systems”. Now it is “applying capitalism to bank investors” rather than rescuing them from the consequences of their bad decisions. Italy should now “get on with a bail-in of its own wobbly banks”, further increasing investors’ confidence in the single currency area.