The resolution of Banco Popular Espanol is the first resolution action taken by the Single Resolution Board (SRB).
The resolution is important in demonstrating that the powers under the Bank Recovery and Resolution Directive (BRRD) and the Single Resolution Mechanism Regulation (SRMR) are capable of being activated quickly, and can be used without the need for taxpayer support.
In this case:
The resolution used the bail-in tool and the sale of business tool in order to (i) write off the bank’s equity and additional tier 1 capital instruments; (ii) convert the bank’s tier 2 subordinated debt into new equity; and (iii) sell Banco Popular in its entirety to Banco Santander for the price of €1. The bank’s contingent convertible bonds were written down to zero.
This was a relatively straightforward resolution. There was no need to bail-in any creditors beyond those holding regulatory capital; there was no need to restructure the bank (for example selling assets to an asset management company); and there was no need to put any of the assets and liabilities of the bank into a bridge bank. In effect, resolution was used to wipe out the claims of the holders of regulatory capital (thereby absorbing the losses) in order to create an entity that was attractive for purchase by a larger bank at a nominal price. This would not have been possible without activating some of the resolution tools. In contrast to the criticism of the European authorities and their interaction with struggling Italian banks, this resolution together with the Spanish authorities has been deemed a success for the resolution framework.