Portugal's Bank Bail-In Sets a Dangerous Precedent

Playing fast and loose with bank capital structures is a dangerous game.

Caveat Creditor.

Photographer: Thomas Meyer/Bloomberg

As Europe belatedly gets around to repairing its weakest banks, investors who have lent to financial institutions by buying bonds face a brave new world. Their money can effectively be confiscated to plug balance-sheet holes. Recent events in Portugal suggest that the authorities should be wary of treating bondholders as piggybanks, or risk destroying a key source of future funds for the finance industry.

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