001 – Bank Resolution in the EU: What Can We Learn from Banco Espírito Santo Downfall?  

In 2014, the Banco Espírito Santo conglomerate collapsed, thus forcing the first bank resolution regulated by the European Union’s Bank Recovery and Resolution Directive (BRRD). There are different explanations for these events, ranging from bad luck (a consequence of the financial meltdown in 2008) to some sort of last-minute regulatory failure and/or capture. Our empirical findings are consistent with a significantly different explanation – the debacle of 2014 had more structural reasons, going back to the reacquisition of BES by the Espírito Santo family in the early 1990s and their business strategy in the following twenty years. There is significant regulatory failure, but it did not start in the 2010s. According to our understanding, the financial meltdown after 2008 may well have precipitated the unfolding events in 2014. However, the global financial crisis was not the cause—most likely an immediate trigger.