Banco Popular · Banking Resolution

Banco Popular

In brief

Banco Popular Español was the first — and so far only — bank fully resolved by the Single Resolution Board: its capital instruments were written down or converted overnight and the bank was sold to Banco Santander for one euro, with no public funds.

Timeline

2017-06-02

Liquidity position deteriorates

Sustained deposit outflows follow months of speculation about the bank's ability to absorb losses on its real-estate exposures.

2017-06-06

ECB determines failing or likely to fail

The determination rests on the exhaustion of the bank's liquidity, not on regulatory capital, which still met requirements.

2017-06-07

Resolution scheme adopted and executed

Shares and AT1 instruments are written down, Tier 2 is converted into shares, and the bank is transferred to Banco Santander for EUR 1. FROB executes the scheme the same morning; branches open normally.

2020-03-17

No compensation for affected holders

On the basis of the valuation 3 report, the SRB decides that affected shareholders and creditors would not have fared better in insolvency.

Background

Banco Popular Español entered 2017 as Spain's sixth-largest banking group, weighed down by non-performing real-estate exposures inherited from the financial crisis. A EUR 2.5bn capital increase in 2016 had failed to settle doubts about the coverage of those assets. Through the spring of 2017, an announced strategic sale process produced no buyer, ratings were cut, and institutional and public-sector depositors began withdrawing funds at scale.

The determination

On 6 June 2017 the European Central Bank determined that the bank was failing or likely to fail under Article 18 of the SRMR — the first such determination for a significant institution. The basis was liquidity: the bank could no longer meet its obligations as they fell due. Its regulatory capital ratios, at that date, still met minimum requirements, which made the case an early demonstration that resolution can be triggered by a funding run rather than a balance-sheet insolvency.

The resolution

Overnight, the Single Resolution Board adopted a resolution scheme combining the write-down and conversion of capital instruments with the sale-of-business tool. Existing shares and Additional Tier 1 instruments were written down in full; Tier 2 instruments were converted into new shares, which were transferred to Banco Santander for a total consideration of one euro. The European Commission endorsed the scheme and Spain's FROB executed it before markets opened on 7 June. No resolution fund or taxpayer money was used, and the bank's branches, deposits and critical functions continued without interruption.

Aftermath

The case generated extensive litigation before the EU courts by former shareholders and bondholders, which has largely upheld the decisions taken. In March 2020, on the basis of the independent "valuation 3" report, the SRB concluded that no creditor was left worse off than in a hypothetical insolvency, and that no compensation was due. Banco Popular remains the reference precedent for how the banking union handles the failure of a significant bank.