The appeal panel said last week that the SRB should publish further information about the way in which Banco Popular was valued before being put through a resolution in June.
Producing a judgement on one of a number of cases against Europe’s central resolution authority, the panel found that the decision to deny access in full to the valuation report was simply “too far-reaching if properly measured against the fundamental rights and the principles of openness, transparency, accountability and democratic control informing European institutions, bodies and agencies”.
The SRB is now analysing what it should do next, and it may well publish further details about how it came to its decision on Popular. But it shouldn’t have taken six months for the authority to realise that parts of the resolution procedure were too opaque.
Of course, it is tricky to say exactly which aspects of a resolution decision should and shouldn’t be made public.
There will have been all manner of sensitive data contained within the valuation report, including information about how much of Popular’s performing and non-performing loan book might have been written off in the given circumstances.
Most corners of the market are clear that publishing some of these details could have a big impact on financial stability, as investors would likely consider what the disclosures should mean for the rest of the European banking sector.
But creditors must have access to at least a minimum of detail about the valuation process if they are going to be clear about why they have just been put through a painful resolution procedure, and if they are going to be able to exercise their right to challenge the SRB’s decision.
Europe’s bank recovery and resolution directive (BRRD) works on the principle that no creditors should be made worse off in a resolution than they would have been had a bank been liquidated. So if someone were able to prove that there was enough value in Popular’s assets for it to have paid back some of its liabilities, it would seriously undermine any rationale for wiping out all of the bank’s subordinated debt and equity.
It is not so much about the numbers themselves, which are subjective, and which the SRB disclosed when Popular failed in June. It said that the Spanish bank had been worth between minus €2bn and minus €8bn, according to independent reports.
It is more about whether or not the methodology behind the numbers can be deemed reasonable and rational. Capital markets lawyers say that this is the clearest way for investors to challenge a resolution decision.
So in refusing to grant investors any access to the valuation report for Popular, the SRB was only creating suspicion where it is more than likely that there need not have been any.
Hopefully, last week’s decisions from the SRB’s appeal panel will provide important food for thought for Europe’s nascent resolution authority, which has only made two decisions since it became operational in 2015.
The SRB must recognise that transparency is going to be vital for ensuring that market participants keep confidence in the EU's Bank Recovery and Resolution Directive. This is a clear lesson that the authorities should have learned following the Popular resolution.