Finance: Research, Policy and Anecdotes

Banking union passes first test

The banking union has passed its first test – the take-over of Banco Popular by Santander, combined with a bail-in of equity and junior bond holders at Banco Popular was done swiftly and efficiently, without rocking the markets or depositors. Certainly, a success for the new resolution framework in the Eurozone, including in terms of cooperation between SSM and SRM. And judging from the impact of the bail-in at Banco Espirito Santo on the real economy, we can expect some but limited negative fall-out for Banco Popular’s borrowers.

 

As academics, we are not supposed to simply praise, but point to challenges.  So, let me point to two!  First, no funding was required (to a large extent, it seems, courtesy of supervisors in Frankfurt and Madrid being alert and reacting in time), which made the operation simpler. The resolution of Italian banks might not be as easy! Second, it was a bank failure in a large country where another bank stood ready to take over the failing bank.  We might not always be as lucky; more importantly, if we want a truly European banking system, we should cheer for cross-border resolutions of such bank failures!