Bank rescues such as Banif and BES caused losses for shareholders and bondholders, but who now must pay the bill when the next bank goes bust?
As of January 1st this year, investors and depositors of large amounts may well be part of any future bank rescue.
In the past two years we have seen BES and Banif go bust. In these two rescue operations it was the shareholders and bondholers who lost money. But under new rules, depositors with more than €100,000 in the bank also may be called on to stem losses and boost the capital of a failed bank.
Shareholders, bondholders and depositors all may be asked to foot the bill, contrary to what happens at present, under the new rules in "Guidelines for Recovery and Banking Resolution" where big depositors may be called on to take responsibility if there is another Banif.
Only deposits of less than €100,000 are protected. All others, shareholders and bondholders, may have to help to offset losses of their institutions before taxpayers are called on to rescue a failed bank.
The aim is to reduce the value of public intervention in the banks, so that taxpayers' money is used only after all other possibilities have been exhausted. Has Banif been sold off after January 1st, 2016, the Portuguese taxpayer could have been around €4 billion better off.
Equity holders, namely the shareholders, are the first to lose money. The "owners" of the bank are called to account for the losses at their institution. Investors could lose their entire capital invested.
These new rules made it imperative for the Bank of Portugal to sell Banif before then end of last year, however bad the deal with Santander proved to be for the taxpayer who now is funding the whole process and guaranteeing future losses.
The advice now is to keep less than €100,000 in any one bank and ditch any shares held in Portugal's banks.
