Here's What the Banco Popular Post-Mortem Shows

The resolution of Banco Popular, a troubled Spanish lender, and its subsequent sale to rival Banco Santander for just one euro has been hailed as a success for the euro zone’s new regime in charge of handling bank failures. Still, the rescue of Popular has left at least three open questions for regulators. First: Could the European Central Bank have done a better job at supervising the bank? Second: Was an alternative solution possible or even preferable? Third: Has the risk of contagion been fully avoided? It’s worth pausing to answer them.

Last Tuesday, the bank faced a sudden liquidity crisis which meant it may have not opened the following day. The European Central Bank and the Single Resolution Board were quick to orchestrate an overnight rescue, which did not involve taxpayers’ money but wiped out shareholders and junior bondholders. When European markets opened in the morning, they were largely unperturbed. Job done, it seemed.