Recall this post from six years ago. Òscar Jordà, Björn Richter, Moritz Schularick, and Alan M. Taylor suggest that higher bank capital ratios help stabilize the financial system ex post but not ex ante, and that illiquidity breeds fragility.
In the FT, Martin Arnold, Tobias Buck, and Rachel Sanderson discuss the significance of the Banco Popular bailin.
The Single Resolution Board was created at the start of 2015 as a pan-European authority for dealing with failing banks. Since then however, the institution has remained almost entirely untested. Now with Banco Popular it has shown its teeth at last. The SRB, chaired by Elke Koenig, acted swiftly after it was informed by the European Central Bank that Popular was “failing or likely to fail” on Tuesday. It imposed heavy losses on shareholders and junior bondholders before transferring Popular’s remaining equity to Santander for only €1. The move is an unprecedented step as it imposes losses for the first time on holders of alternative tier one (AT1) securities — the riskiest bonds in a bank’s capital structure that are designed to absorb losses in a crisis.