The Asymmetric Shock: Competitors Retreat, Santander Holds the Line

Banco Popular’s resolution did not produce one common response across the banks connected to its borrowers. The important result is an asymmetry: lenders outside the transaction reduced credit to riskier Banco Popular firms, while Santander broadly maintained the inherited relationships and gave the strongest relative support to the same risky segment. Reading that pattern correctly requires looking past the average. The evidence shows a distributional choice about which relationships to protect, not a blanket promise that every loan survived or that the acquiring bank expanded lending everywhere.

What competing banks did with inherited risk

Banks that were not involved in the sale did not inherit Banco Popular’s balance sheet, receive its customer information as part of the transaction, or bear the direct task of preserving its franchise. Their funding and capital positions were not mechanically changed by Santander’s purchase. In principle, they could have used the disruption as an opportunity to lend more to firms whose former lender was failing. New or expanded relationships might have filled the gap and spread the adjustment across the banking system.

The observed response went in the other direction for a specific group. Non-acquiring banks reduced lending to borrowers that had been connected to Banco Popular, and the withdrawal was concentrated among firms classified as riskier before the resolution. The paper estimates that credit to risky Banco Popular borrowers fell by nearly 5% relative to credit to safer borrowers. The comparison is relative: it does not say that each risky firm lost exactly 5% of its credit, nor that the entire stock of lending by every outside bank fell by that amount. It says that, after the event, the riskier segment experienced a roughly 5% relative disadvantage in the relevant lending comparison.

That qualifier matters because a relative estimate can arise through several underlying movements. Safe-borrower lending could remain broadly unchanged while risky-borrower lending contracts; both groups could change but the risky group could fall further; or the comparison could reflect a change in the composition of relationships that does not appear as a simple count of loans closed. The estimate identifies the difference in lending evolution between the risk categories under the study’s comparison design. It is not a claim that 5% of all Banco Popular loans vanished, that every outside lender acted identically, or that risk alone determined the fate of an individual firm.

The denominator also shapes the economic meaning. The relevant comparison is credit supplied by non-acquiring banks to borrowers connected with the failed bank, measured against the safer borrowers and the study’s pre-resolution relationship structure. A large bank’s aggregate loan book could look stable while it reduced exposure to a narrow group of risky inherited firms. Conversely, a firm could retain the same total credit if Santander or another lender offset the withdrawal.