8th May, 2013

The Portuguese banking system is not in the same situation as Cyprus, because the Portuguese banks are in good shape, properly capitalised with high solvency and comfortable liquidity. This means that deposits in Portugal are perfectly safe.

Indeed, there could only be a problem with deposits if a bank if is declared insolvent or is being resolved (i.e. if the institution's situation is systemic and requires organised assistance). This is not the case in Portugal. Even in the event of insolvency, customers' deposits are guaranteed up to 100,000 euros by the Deposit Guarantee Fund in Europe.

The Eurogroup is preparing a crisis-management directive for banking institutions with a view to recovering or resolving them or restoring their viability. Bank resolution mechanisms will be used for institutions in crisis, bank by bank, and in extreme cases, as these measures are being implemented to minimise the likelihood of liquidation. In the event of liquidation of a bank with no solution, depositors would lose deposits not covered by the Cyprus Guarantee Fund.

So-called bail-in instruments (converting an institution's liabilities into capital) have not been completely determined but we assume that the shareholders, owners of convertible capital and subordinated liabilities will be called on to recapitalise the banks to make them viable, thereby reducing state intervention or recourse to EU financial stabilisation mechanisms, i.e. taxpayers' money (bailout).

The APB has been pressing in Brussels for all deposits, and not just those covered by deposit guarantee funds, to be excluded from bail-in instruments to prevent potential systemic risks. If this position does not win out, the APB feels that uncovered deposits (over 100,000 euros) should have a preferential claim.

Portuguese Banking Association