Portugal has a rich history in banking and finance, dating back to the establishment of Banco de Portugal in 1846. Since then, the Portuguese banking system has undergone several transformations due to various historical events, such as the 1974 Carnation Revolution and the 2008 Global Financial Crisis. These events have shaped the legal and regulatory framework of the Portuguese banking sector, with the aim of promoting stability and ensuring the protection of account holders and creditors.
Portuguese banking principles revolve around the central concepts of safety, liquidity, and profitability. However, banks face risks such as credit, market, operational, and liquidity risks. The regulatory framework aims to minimize these risks by setting standards and monitoring compliance with various laws and regulations.
Banking regulation is crucial to ensure financial stability, protect consumers and investors, and maintain the confidence of account holders and other creditors. It also prevents abusive practices and reduces the likelihood of bank failures, which could have a detrimental impact on the economy and the financial well-being of individuals and businesses.
The Portuguese banking sector has several weaknesses, including high levels of non-performing loans, weak capitalization, and a lack of profitability. These factors increase the risk of bank failures and could negatively affect account holders and other creditors. However, the regulatory framework is designed to mitigate these risks and protect stakeholders.
Portuguese Banking Law
General Regime of Credit Institutions and Financial Companies (Decree-Law No. 298/92): This law outlines the fundamental principles governing the organization, operation, and supervision of credit institutions and financial companies in Portugal.
Legal Framework for Credit Institutions and Financial Companies (Banking Law – Law No. 102/2015): This law establishes the legal framework for the authorization, registration, and supervision of credit institutions and financial companies.
Bank Recovery and Resolution Law (Decree-Law No. 31-A/2012): This legislation outlines the procedures for the recovery and resolution of credit institutions in Portugal and aims to minimize the impact of bank failures on the financial system and the economy.
Insolvency and Corporate Recovery Code (CIRE – Decree-Law No. 53/2004): This code governs insolvency proceedings and the recovery of companies, including banks, in Portugal.
The Bank of Portugal is responsible for enforcing banking regulations and has the power to impose administrative sanctions on credit institutions that violate the law. These sanctions may include fines, the suspension or revocation of licenses, and other measures aimed at ensuring compliance with the legal framework.
Portuguese banks are subject to European Union (EU) regulations, which are enforced by the European Central Bank (ECB) and the European Banking Authority (EBA). The ECB and EBA can impose sanctions on credit institutions that violate EU regulations, including fines and other corrective measures.
Bank Resolution Procedures in Portugal
In the event of a bank failure, the Bank Recovery and Resolution Law establishes a framework for resolving the situation, which may involve the sale of the bank, the transfer of its assets and liabilities, or the establishment of a bridge institution. This process aims to ensure the continuity of critical functions and minimize the impact on the financial system, the economy, and stakeholders, including account holders and other creditors.
Bank Insolvency Procedures in Portugal
The Insolvency and Corporate Recovery Code (CIRE) provides the legal framework for insolvency proceedings, including those involving banks. The CIRE outlines the steps to be taken during insolvency, including the appointment of an insolvency administrator, the evaluation of the bank’s assets and liabilities, and the development of a recovery plan or liquidation strategy.
In the event of a bank insolvency, the CIRE establishes a hierarchy for the priority of claims. This hierarchy determines the order in which creditors are paid from the proceeds of the liquidation. The priority of claims is generally as follows: Secured creditors: Creditors with collateral, such as mortgages or pledges, have the highest priority; Preferential creditors: These include tax authorities and social security institutions; Unsecured creditors: This category includes all other creditors, such as account holders, suppliers, and bondholders.
Historic Events: Failed Portuguese Financial Institutions
Banco Espírito Santo (BES): BES was one of Portugal’s largest banks before its collapse in 2014. The Bank of Portugal intervened, applying the resolution framework to protect depositors and maintain financial stability. BES’s healthy assets and liabilities were transferred to a new bank, Novo Banco, while its toxic assets remained in BES, which was later liquidated.
Banif: In 2015, Banif, another Portuguese bank, faced severe financial difficulties. The Bank of Portugal intervened and implemented a resolution plan that included the sale of its assets and liabilities to Banco Santander Totta, ensuring the protection of depositors and the continuity of its critical functions.
Legal Framework for Creditors Impacted by Bank Failure in Portugal
Creditors impacted by a bank failure in Portugal can rely on the legal framework to protect their interests and potentially recover their investments. The Bank Recovery and Resolution Law, as well as the Insolvency and Corporate Recovery Code, provide guidelines for the resolution and insolvency processes, ensuring that the rights of creditors are taken into account. Creditors should closely follow the proceedings and engage legal counsel to navigate the complex processes involved in bank resolution and insolvency.