The draft structure for Spain’s rescue of its banking system suggests a big chunk of the cost will be borne by private investors, through losses on equity and subordinated debt.
Unfortunately, this will hurt the ailing economy even more, and ultimately only save money for Spain’s eurozone partners. The bad news for banks (and good news for taxpayers and efficient resource allocation) is that it also sets a new standard for future bailouts, over-riding the local political desire to save creditors. Worse news for banks could be to come, as the logical next step is for the eurozone bail-out fund to establish rules demanding losses for senior bondholders in future bank rescues.
Charts after the break showing Spain and what looks like the mispricing of bank CDS. Read more
James Mackintosh is the Financial Times' Investment Editor, writing and presenting the daily Short View column and video. In 16 years at the FT his posts have included comment editor, motor industry editor and hedge funds correspondent, as well as spells in the Parliamentary lobby and Paris. He was the first reporter hired for FT.com, joining two weeks before it launched.
John Authers is the Financial Times' Senior Investment Columnist, writing the Saturday Long View and a regular Monday column. In a 22-year career at the FT, his previous posts have included global head of the Lex column, investment editor, US markets editor, Mexico City bureau chief and US banking correspondent. His latest book is The Fearful Rise of Markets. 