Bank Bailouts and Activist Ideas

Bank bailouts are back.

Earlier this month Banco Popular Espanol SA collapsed very tidily: Europe's Single Resolution Board stepped in to wind it down, its common stock and additional capital instruments were wiped out, and Banco Santander SA stepped in to buy its remaining assets and liabilities for one euro. Depositors and senior bondholders, who expected their money to be safe at Popular, were safe; shareholders and investors in capital instruments, who knew the risks they were taking, got zeroed. It was as neat a bank rescue as you could ask for, and I praised it in those terms, though I also worried a bit that it was too neat. Two very tidy things happened in that rescue: Senior bondholders didn't lose any money, and no state aid was required. The question was, which one was the controlling principle: If a future bank bailout had to choose between haircutting senior bonds (which in theory are supposed to be "bail-in-able") or using state aid, which would the regulators choose?