Top news
Rushed Popular resolution casts
long shadow over Europe’s banks
People & Markets Two years on, the resolution of Banco Popular has become a legal messBY GARETH GORE!TûAMûONû-ONDAYû*UNEûû
ûANûEMAILûLANDEDûINûAû
MAILBOXûATû"ANCOûDEû%SPANAû!û
BANKûRUNûWASûUNDERWAYûATû"ANCOû
0OPULAR ûONEûOFû3PAINSûBIGGESTû
BANKSû"ARELYûTHREEûMINUTESûINTOû
THEûWORKINGûWEEK ûTHEûSITUATIONû
WASûALREADYûCRITICALûnû0OPULARûWASû
RUNNINGûOUTûOFûCASH ûANDûFASTû4HEû
EMAILûCONTAINEDûAûFORMALûREQUESTû
0OPULARûWASûAPPEALINGûTOûTHEû
3PANISHûCENTRALûBANKûFORûõBNû
INûEMERGENCYûLIQUIDITYûASSISTANCE
&ORûOFlCIALSûATû"ANCOûDEû
%SPANA ûTHEûREQUESTûWASûNOTû
UNEXPECTEDû4HEYûHADûBEENû
WORKINGûFORûMOREûTHANûTWOû
MONTHSûWITHûAûTEAMûFROMû
Popular to prepare for this
MOMENT ûEVERûSINCEûANûINTERNALû
AUDITûATûTHEûLENDERûHADûUNCOVEREDû
lNANCIALûIRREGULARITIESûTOTALLINGû
HUNDREDSûOFûMILLIONSûOFûEUROSûATû
THEûENDûOFû-ARCH ûIRREGULARITIESû
THATûINCLUDEDûAûWEBûOFû
,UXEMBOURGûCOMPANIESûDESIGNEDû
TOûHIDEûTHEûEXTENTûOFû0OPULARSû
BADûLOANûPROBLEM
"YûAMûTHEûSAMEûMORNING û
THEûMONEYûWASûWITHû0OPULARû4HEû
INJECTIONûCAMEûJUSTûINûTIMEûnû
ACCORDINGûTOûPEOPLEûINVOLVED ûTHEû
BANKûWOULDNTûHAVEûSURVIVEDû
ANOTHERûHALFûANûHOURû"UTûANYûRELIEFû
WASûSHORT
LIVEDû!SûDEPOSITSû
CONTINUEDûTOûPOURûOUT ûITûSOONû
BECAMEûCLEARûTHEûBANKûWOULDûNEEDû
MOREûHELPû!TûPM û"ANCOûDEû
%SPANAûRECEIVEDûANOTHERûEMAILû
FROMûTHEûBANK ûTHISûTIMEûREQUESTINGû
ANûINCREASEûINû%,!ûTOûõBN
!LTHOUGHûHIGH ûTHEûAMOUNTû
WASûWITHINûTHEûLIMITSûPREVIOUSLYû
DISCUSSEDû0OPULARûHADûõBNûOFû
UNENCUMBEREDûASSETSûAVAILABLE û
ANDû"ANCOûDEû%SPANAûHADûEARLIERû
INDICATEDûTHATûõBNûOFûTHOSEû
WOULDûMEETûITSûSECRETIVEû%,!û
CRITERIAû/NCEûHAIRCUTSûnûOFû
BETWEENûûFORûTHEûBESTûASSETSû
ANDûûFORûTHEûWORSTûnûWEREû
APPLIED ûOFlCIALSûCALCULATEDûTHEû
CENTRALûBANKûCOULDûLENDû0OPULARû
JUSTûOVERûõBN ûALBEITûATûAûPENALû
INTERESTûRATEûOFûMOREûTHANû"UT ûlRST ûAPPROVALûWASûNEEDEDû
FROMûTHEû%UROPEANû#ENTRALû"ANK û
WHICHûHADûTOûSIGNûOFFûONûANYû%,!û
REQUESTûGREATERûTHANûõBNû
$ESPITEûITûBEINGûAûPUBLICûHOLIDAYû
INû'ERMANY ûTHEû%#"ûGOVERNINGû
COUNCILûDISCUSSEDûTHEûMATTERûBYû
PHONEû0OPULARûWASûCONlRMEDûASû
SOLVENT ûANDûTHEûREQUESTûWASû
APPROVEDû"UTûWHATûHAPPENEDû
NEXTûCAMEûASûAûSHOCKû"ANCOûDEû
%SPANAûTURNEDûDOWNûTHEûREQUEST û
CITINGûINCOMPLETEûPAPERWORK0OPULARûSTAFFûWORKEDûTHROUGHû
the night to meet the central
BANKSûLAST
MINUTEûDEMANDS û
WHICHûWEREûTHREATENINGûITSû
ACCESSûTOûVITALû%,!û4HEûBANKûSTILLû
HADûõBNûOFûACCEPTABLEû
COLLATERALûLEFTû
ûõBNûHADûBEENû
USEDûTOûSECUREûTHEûlRSTûTRANCHEû
OFû%,!û
ûANDûTHESEûISSUESûWITHûTHEû
PAPERWORKûHADNTûBEENûmAGGEDû
BEFOREû"ANCOûDEû%SPANAû
EVENTUALLYûGAVEûTHEûGREENûLIGHTû
TOûAûFURTHERûõBNûTHEûNEXTûDAY û
BUTûITûWASûTOOûLITTLE ûTOOûLATE
h)TûWASûEMBARRASSING vûSAIDûONEû
PERSONûINVOLVEDûh)Nû-ARCHûWEû
STARTEDûDISCUSSIONSûnûINû-ARCHû7Eû
WEREûDOINGûTRIALûRUNS ûGOINGûBACKû
ANDûFORTHûWITHûTHEûCOLLATERALû4HEYûHADûCHECKEDûITû"UTûTHEûTRUTHûISû
THEYûWEREûABSOLUTELYûDETERMINEDû
NOTûTOûTAKEûITû"YûTHEûTIMEûTHEYû
REALISEDûTHEYûHADûTO ûTHEYûJUSTû
WERENTûREADYû7EûSTARTEDûHITTINGû
ALLûTHESEûLITTLEûHICCUPS ûANDûTHENû
SUDDENLYûTHEYûTOLDûUSûTHEYû
COULDNTûDOûANYTHINGûMOREv
4HEûSUDDENûDENIALûOFû%,!ûHASû
PUZZLEDûMANYûSINCE
h#RUCIALLY ûTHEûBANKûWASûSTILLû
SOLVENT vûSAIDû*EROMEû,EGRAS ûHEADû
OFûRESEARCHûATû!XIOM ûANûASSETû
manager that focuses on banks
ANDûOWNEDûAûSMALLûAMOUNTûOFû
0OPULARûBONDSûh4HEYûMOSTLYûHADû
AûCASHûPROBLEMû)FûITûWASûPOSSIBLEû
TOûLENDûõBNûOFû%,!ûTOû'REEKû
BANKSûTOûKEEPûTHEMûAmOATûWHENû
THEYûWEREûCOMPLETELYûINSOLVENT û
THENûWHYûCOULDNTûTHEYûDOûTHEû
SAMEûWITHû0OPULAR û4HEREûISûAûREALû
PROBLEMûOFûCONSISTENCYv
"YûTHEûENDûOFûTHEûDAYûONû
4UESDAY û0OPULARûBOSSESû
CONCLUDEDûTHEûBANKûSIMPLYû
COULDûNOTûOPENûTHEûNEXTûDAYû
4HEYûNOTIlEDûTHEû%#" ûWHICHû
DECLAREDû0OPULARûnûAûBANKûITûHADû
DEEMEDûSOLVENTûAûDAYûEARLIERûnûASû
hFAILINGûORûLIKELYûTOûFAILvû4HATû
morning Popular become the
lRST ûANDûTOûDATEûONLY ûBANKûTOûBEû
PUTûINTOûRESOLUTIONûUSINGûNEWû
%UROPEANûRULESûBROUGHTûINûAFTERû
THEûûlNANCIALûCRISISûTOûMAKEû
BANKûFAILURESûMOREûORDERLYSTRUCTURAL WEAKNESSES
4HEûMESSûAROUNDû%,!ûISûJUSTûONEû
in a series of mishaps in the
0OPULARûCASEûTHATûHAVEûRAISEDû
QUESTIONSûABOUTûWHETHERûTHEû
SYSTEMûTOûDEALûWITHûFAILINGûBANKSû
ISûlTûFORûPURPOSEû4HROUGHû
DOZENSûOFûINTERVIEWSûANDûAûTROVEû
OFûCONlDENTIALûDOCUMENTSû
TOTALLINGûTHOUSANDSûOFûPAGES û)&2û
HASûPIECEDûTOGETHERûWHATû
HAPPENEDûDURINGû0OPULARSûlNALû
DAYSû)TûISûCLEARûTHAT ûDESPITEûTHEû
BANKSûPROBLEMSûBEINGûmAGGEDû
MANYûMONTHSûINûADVANCE ûWHENû
THEûCRISISûlNALLYûHITûAUTHORITIESû
FOUNDûTHEMSELVESûILL
EQUIPPEDû
ANDûILL
PREPAREDûTOûADEQUATELYû
DEALûWITHûTHEûSITUATION)NDEED ûFARûFROMûBEINGûANû
ORDERLYûRESOLUTION ûTHEû0OPULARû
case has since become a legal
QUAGMIREû%UROPEANûINSTITUTIONSû
INCLUDINGûTHEû%#"ûANDû3INGLEû
2ESOLUTIONû!UTHORITY ûWHICHûWASû
SETûUPûINûûSPECIlCALLYûTOû
PLANûFORûANDûOVERSEEûTHEû
RESOLUTIONûOFûFAILINGûBANKS ûAREû
NOWûDEFENDANTSûINûMOREûTHANû
ûLEGALûCASESû/NEûCOMMONû
THEMEûISûTHAT ûDESPITEûPLENTYûOFû
WARNINGûANDûYEARSûOFû
PREPARATION ûTHEûAPPROACHûOFû
AUTHORITIESûWASûPIECEMEALûANDû
ADûHOC
4HEûISSUEûGOESûMUCHûWIDERû
THANûJUSTû"ANCOû0OPULARûITûHASû
implications for the health of
THEûENTIREû%UROPEANûBANKINGû
SYSTEMû3INCEûTHEûRESOLUTIONûOFû
0OPULAR ûTHEREûHASûBEENûAû
DRAMATICûINCREASEûINûTHEûCOSTûOFû
BORROWINGûFORûEVENûTHEû
HEALTHIESTûOFûBANKSû7HILEûAû
MULTITUDEûOFûFACTORSûISûDOUBTLESSû
INûPLAY ûMANYûBELIEVEûTHATûTHEû
WAYûTHEû3PANISHûBANKûWASûDEALTû
WITHûISûTHEûBIGGESTûCONTRIBUTORû
)NVESTORSûNOûLONGERûTRUSTûTHATû
FAILINGûBANKSûWILLûBEûDEALTûWITHû
INûANûORDERLYûANDûLEGALISTICûWAY
“It is absolutely critical that
THEûLAWûISûCOMPLIEDûWITH vûSAIDû
2ICHARDû%AST ûAûLAWYERûATû1UINNû
%MANUEL ûWHICHûISûREPRESENTINGû
AûGROUPûOFûDISGRUNTLEDû
BONDHOLDERSûh4HEû32"ûCANNOTû
make up the rules as it goes
ALONGû4HEû%5ûLEGISLATORûTOOKû
YEARSûTOûDESIGNûANDûLAYûDOWNû
THESEûRULESûINûTHEûWAKEûOFûTHEû
lNANCIALûCRISISû)NVESTORSûCANNOTû
INVESTûWITHûCONlDENCEûIFûTHEYû
see that the regulator is acting
OUTSIDEûOFûITSûOWNûRULESv
&ORMERûSHAREHOLDERSûANDû
BONDHOLDERSûOFûTHEûFAILEDû3PANISHû
BANKûAREûLEADINGûTHEûCHARGEûFORû
ANSWERSûnûANDûCHANGEû4HEûTWOû
GROUPSûWEREûHITûHARDûALLûSHARESû
WEREûANNULLED ûWHILEûõBNûOFû
BONDSûWEREûBAILEDûINûTHENû
WRITTENûDOWNûTOûZEROû4HEûBANKû
WASûTHENûSOLDûTOû3ANTANDERûFORûAû
TOKENûõû)NVESTORSûARGUEûTHATûTHEû
Source: Banco de España RESOLUTIONûPROCESS ûOVERSEENûBYû80
75
70
65
60
55
50
Mar Apr May JunEVOLUTION OF DEPOSIT OUTFLOWS
TOTAL CLIENT DEPOSITS, €BN“If it was possible to
lend €80bn of ELA to
Greek banks to keep
them afloat when
they were completely
insolvent, then why
couldn’t they do the
same with Popular?