Danièle Nouy, the head of the euro area’s bank supervision authority, defended the work of her officials in their handling of the crisis at Banco Popular, saying that there was nothing else she could have done to prevent the failure of the bank.
Speaking in a European Parliament hearing, Mrs Nouy, chair of the supervisory board at the European Central Bank said that “modestly…I would say that we have passed the test.”
“I fail to see even with the knowledge we have today what we could have done differently.”
Banco Popular came to the brink of collapse earlier this month before being sold to rival Santander in a late-night deal brokered by EU regulators.
The affair marked the first use of a new EU system for handling bank failures that was introduced in response to the financial crisis. As such, it was a test of both the SSM, the euro area bank supervisor led by the ECB, and of the Single Resolution Mechanism, the currency bloc’s new agency for winding down failed banks.
EU officials have hailed the outcome as proof that the new system works, but Ms Nouy came under fire from members of the parliament over why supervisors had not done more sooner to tackle problems at the bank.
Ms Nouy said that the ECB had required Popular to build up “billions and billions of extra provisions” since it began supervising the bank in 2014 and that it has carried out many on-site inspections.
She said that EU-wide stress tests in 2016 had laid bare the problems at the bank.
“This was the third worst bank in this exercise, and the capital depletion was quite strong,” she said. “So we were obviously not surprised” when it got into difficulties.
Ms Nouy said she was prevented from saying more by confidentiality rules – an answer that failed to satisfy some MEPs.
Roberto Gualtieri, the chairman of the assembly’s economic and monetary affairs committee said:
I don’t agree with this assessment. I think it would be better for the SSM to recognise that there were some problems.
Nobody is saying that the problem is the resolution of the bank, the problem is the fact that it happened as a surprise, and nothing has been done in time, and the bank has been declared fine for too long a time, that is the problem.
Ms Nouy said Banco’s episode reinforced the case for EU authorities to be given certain additional powers that could help in smoothly handling bank crises, including the power to impose a “moratorium” on creditor payouts and other “early intervention measures.”
Asked why Banco Popular was declared by regulators to be failing on the basis of a liquidity crisis, Ms Nouy hinted its problems went deeper. “Liquidity is the manifestation, the ultimate step of a disease”.
Pervenche Berès, a French MEP said she also had concerns: “If we go back through the events, what happened was that everything was fine because there was a buyer. But what if there had not been a buyer?” she said.
The episode had sharpened concerns over gaps in the EU’s system for handling failing banks, Ms Berès said, citing the lack of a euro-area wide scheme for insuring bank deposits.
EU rules require 8 per cent of a failing bank’s liabilities to be wiped out by regulators before any public money can be used to help stabilise it. The requirement means that senior bondholders and even depositors can potentially be hit.
This situation was avoided in the case of Banco Popular because of the sale to Santander.