Monday, January 25, 2016
Banking union outlook.
At end-2015, two looming bank crises previewed what might happen in the era of EU banking union. In Italy, four regional banks were split into 'good' and 'bad' banks, with shareholders and subordinated bondholders being wiped out. In Portugal, senior bondholders of Novo Banco, the good bank born from the ashes of bailed-out Banco Espirito Santo (BES), were 'bailed in', a move that has turned into an acrimonious and chaotic dispute between the central bank and investors. Bailing-in is intended to ensure that shareholders and creditors bear the costs of rescuing or liquidating a failing bank before taxpayers' money is used.