EU Works To Quell Chaos Post-Bank Failures

Launched in 2016, the Single Resolution Board (SRB) aims to make sure that the failure of one major bank does not impact the EU’s entire banking system or require a bailout from taxpayers.

In an interview with The Financial Times, the agency’s head, Elke König, said that while there has been progress in how the EU handles bank failures, it is still “an ongoing challenge.”

The SRB is part of a larger plan by the Eurozone to create a “banking union” that will transfer banks’ operational responsibilities to the European level. During the 2008 financial crisis, politicians had to decide whether to bail out failing major banks or let them go bankrupt. The SRB, which is based in Brussels and has a staff of 300, was formed to avoid these decisions, with the agency given the power to write down creditors, break up a bank or arrange a sale, with a focus on maintaining the failing financial institution’s critical functions.

The agency’s first task came in June 2017 when it handled the fledgling Banco Popular, which was then Spain’s sixth-largest lender. The bank was quickly running out of money, so the SRB planned overnight to force lower-ranked creditors to take losses and then sell the bank to Banco Santander for a symbolic euro. So far, Banco Popular is the only financial institution to go through the agency’s resolution process.

König said the resolution was a “game changer” for the bloc’s banking system. “It was proof that we can resolve a bank,” she said.

But not everyone was happy — especially the bank’s shareholders and bondholders, who lost money.  “It is not that our clients have any issue with the resolution process per se . . . It is the fact that the Banco Popular resolution has been flawed at almost every point in its evolution,” said Richard East, co-managing partner at Quinn Emanuel, a law firm for the bondholders.