Bail-in or bail-out : the case of Spain

In this article we analyse the feasibility of a bail-in for Spain. After a detailed analysis of the origins of the Spanish banking crisis and the government’s response in the form of a bail-out by taxpayers in 2012, we investigate whether a bail-in would have been feasible instead. The bail-in procedure recently announced by the Council of the European Union provides for a bail-in, although important liabilities are excluded. We criticize these exclusions and the discretionary power given to governments under the Council’s plan because it could lead to the use of (foreign) taxpayers’ money. However, following the path and rules set out by the Council we can show that a bail-in would have been feasible in the case of the Spanish banks. Finally, we set out the advantages of such a bail-in over a bail-out in the Spanish case.