Banco Popular victim of large-scale run, says ECB

Bank subject to regualtory intervention and subsequently sold to Santander for €1

Banco Popular was the victim of the euro zone's first large-scale bank run, which triggered the urgent need for regulators to intervene and engineer its rescue this week, a senior official at the European Central Bank has said.

“The reasons that triggered that decision were related to the liquidity problems,” Vitor Constâncio, vice-president of the ECB said on Thursday. “There was a bank run. It was not a matter of assessing the developments of solvency as such, but the liquidity issue.”

The ECB’s regulatory arm stepped in on Tuesday to declare that Popular was “failing or likely to fail”, which placed the bank in the hands of the Single Resolution Board, the euro zone’s new body for handling failing banks.

After European regulators took control of Popular on Tuesday, they wiped out the struggling lender's shareholders and junior bondholders, and sold it for a symbolic €1 to Banco Santander, its bigger rival


The move was prompted by a warning from Popular to Spanish authorities on Tuesday afternoon that its depositors were withdrawing money so quickly that it would not be able to open the next day unless a solution was found, according to two people involved in the deal.

Slow to react

Asked at a press conference if the ECB had been too slow to react to Popular’s escalating problems, Mr Constâncio said: “Our role as ECB was just the declaration that the bank for liquidity reasons was failing or likely to fail.”

The sale was agreed within 24 hours, winning praise for how the euro zone’s relatively new institutions tasked with handling failing banks dealt swiftly with Popular’s problems without using taxpayer funds or hitting depositors and senior bondholders.

While shareholders in Popular lost everything and its €2 billion in junior bonds were wiped out, there has been little sign of contagion in either equity or debt markets.

“The matter after the declaration went to the resolution mechanism, to their board, to take the decisions about resolution,” said Mr Constâncio. “So after the declaration of ‘failing or likely to fail’, we had no interference with the subsequent decisions. They belonged completely to the SRB.”

- Copyright the Financial Times Ltd