The crisis stemming from the Russian invasion of Ukraine and subsequent Western sanctions has claimed another victim in the European financial system, namely RCB Bank (formerly Russian Commercial Bank) in Cyprus, a country with strong ties to Russia. 

While in the case of Sberbank its crisis in Europe ended with the resolution of two of its banks and the liquidation of the rest, in the case of RCB Bank the crisis has been managed without having to reach the resolution or liquidation of the bank. 

RCB Bank has sold a portion of its loan portfolio (all current) to Hellenic Bank, one of the systemic banks in Cyprus. The discount recognized by the parties is less than 10% of the value of the portfolio. With the liquidity obtained from this sale, RCB Bank repays all its customers' deposits. At the same time, the bank will not be able to accept new deposits, grant new loans and make new investments. To control the process of RCB Bank's exit from regulated banking, the European Central Bank (ECB) has appointed a temporary administrator who will not replace the bank's management team. Of course, Hellenic Bank has committed to execute all due diligence processes on new clients in order to comply with the decisions taken by the Western authorities on sanctions against Russia. 

What does this operation suggest to us? First, the European framework of management of banking crises has proven to have adequate tools for each phase of a bank crisis and to be able to apply them flexibly and effectively. 

Second, the relationship between supervisory and resolution frameworks is very close. The success of the prudential measures that a supervisory authority can take in the face of a bank's crisis is the best way to avoid its non-viability. In this case, the bank had no solvency problems and was strongly capitalized, which has facilitated both the agreement between the parties for the sale of the credits and the adoption by the ECB of decisions covered by article 16 of Regulation (EU) 1024/2013 of committee, of 15 October 2013. 

Third, private solutions are always desirable when a bank enters into crisis. Moreover, European regulation (Articles 18 of the Single Resolution Mechanism Regulation and article 32 of the Bank Recovery and Resolution Directive) requires as a condition for a bank to enter resolution that the authority verifies that there is no reasonable prospect that an alternative private sector measure would prevent the non-viability of the institution within a reasonable time frame ( deadline ). 

Avoiding value destruction 

Fourth, one of the objectives of the European supervisory and resolution framework is to avoid unnecessary destruction of value in a bank crisis. It is clear that this goal has been fulfilled in the case at hand. Others have also been met: no cost to the taxpayer, continuity in the provision of critical functions, maintenance of the country's financial stability and protection of depositors and investors.

Fifth, the strategic behaviors that may have occurred in some previous crises (waiting to acquire the bank or its assets at a bargain price after the resolution authority declared it unviable) cannot be generalized to all crises, as is evident in this case. 

Sixth, the Cypriot market's appetite for performing assets has made possible a transaction at a minimal discount, and all this in a scenario of maximum geostrategic and economic tension. The improvement in the acquiring bank's default rates with this transaction explains, in part, this appetite.

The management of a bank crisis is a very sensitive issue in Cyprus following the 2013 banking crisis, in which an aggressive bail-in exercise was applied to distressed Cypriot banks and reached out to depositors. The negative consequences of that measure on the financial system and the Economics of Cyprus accelerated the adoption of the European bank resolution framework and the creation of a European resolution authority. 

The first reactions to RCB Bank's exit from the market, even after the appointment of an administrator provisional of the entity, seem favorable, although it will be necessary to wait until next Monday, when the bank opens its doors, to confirm this first evaluation. The bank's advertisement that it has sufficient liquidity to meet its obligations should allow an orderly exit of RCB Bank from the market, avoiding any banking panic. 

Of course, the first few days from advertisement of such an exit will be decisive and operational failures in the execution of payments, especially to depositors, should be avoided.