In a landmark decision, the General Court of the European Union has ruled in favour of the European Union’s decision to wind up Spain’s struggling Banco Popular in 2017. This judgment marks the first significant test of controversial European rules to prevent taxpayers from bailing out struggling lenders.
Six years ago, Banco Popular was deemed on the brink of collapse by regulators and subsequently sold to Banco Santander for a symbolic one euro. The move resulted in significant losses for investors, sparking multiple legal challenges.
The court dismissed claims from shareholders that they did not receive a fair hearing from the EU, stating that the valuation process relied on a correct methodology and did not involve manifest errors. Additionally, the judges rejected investors’ allegations of bias in a valuation report conducted by Deloitte, which concluded that investors would not have been worse off under regular insolvency proceedings.
This case is a crucial test of the legality of EU rules introduced to ensure that major lenders can undergo controlled collapses without resorting to taxpayer-funded bailouts. In response to the financial crisis, the European Commission proposed these resolution rules in 2012, aiming to prevent wider meltdowns and the need for massive taxpayer funds to rescue struggling banks.
The Single Resolution Board (SRB), an EU agency, last employed these resolution rules in 2022 to wind up two Balkan units of Russia’s Sberbank in the aftermath of the Ukraine invasion.
Following the collapse of three US lenders, the European Commission proposed revamping the rules in April 2022, emphasizing the importance of adapting regulations to address evolving challenges in the banking sector.
