Two conclusions can be drawn from the deep crisis facing Portuguese financial group Espírito Santo and the bank of the same name.
First, monitoring by Portuguese banking regulators and the troika of the European Union, International Monetary Fund, and European Central Bank has failed. This is undermining trust in the country’s entire financial sector.
Second, there is also a positive effect. The bailout packages of recent years and new rules for bailing out banks are opening ways for the Portuguese government to minimize costs to taxpayers. They also lower the risk of state insolvency spreading throughout the 18-country euro zone.
For three years, until just a few weeks ago, Portugal was under the wings of the troika of international organizations, which were trying to help stabilize its failing economy. During this time, bank balances were examined and some institutions recapitalized. Banco Espírito Santo – which last week reported crippling losses and now needs some €3 billion ($4.03 billion) in fresh capital – had been pronounced healthy. Just a few days ago, Portuguese banking authorities declared that the country’s second largest bank had sufficient capital to handle its problems.