Banking: Portugal’s bail-in bombshell
Portugal’s central bank had very few options when it decided to bail-in senior bondholders of Novo Banco at the end of last year. The move has dismayed investors and may breach the ECB’s newly introduced bail-in powers. Have years of effort in developing a bank resolution regime already gone up in smoke? And what does it all mean for a deeply shaken market for bank funding?
European investors were well-prepared for the implementation of the EU’s Bank Recovery and Resolution Directive (BRRD) bail-in regulation on January 1 this year. However, the Bank of Portugal’s decision to bail-in a small number of senior bondholders in Novo Banco, just three days before year-end means that the new legislation is now overshadowed by confusion and controversy.
Many senior bond investors had their year-end break interrupted by a press release from the Bank of Portugal on December 29.