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I think limiting bank withdrawals in one EU country could have the unintended consequence of inspiring bank runs in some other EU countries where people might fear a similar fate. Because rational people act in anticipation of an event, rather than waiting for the event to occur, especially when it comes to their money.
What I meant about the Spanish bonds is Spain might well recapitalize banks by buying bank bonds, and designate the government senior in rank to existing bondholders, which would devastate the value of existing bank bonds and thereby set off a different crisis. Subordination is a four-letter-word to bondholders. Bruce who usually seems pretty sharp explains it all:
This is a good article indicating that the governments who lent Spain the money are going to want it back, meaning they will have first lein on any assets and first rank to bondholders. It may or may not trigger a credit event by ISDA definition -but you can be sure a lot of bondholders will lose money. it might not devastate the value of existing bonds, but it would result in losses. Banks and institutions which bought Spanish bonds are probably prepared for this. The real question coming up is , will Spain be able to access the credit markets at reasonable rates? And Now, Spanish CDS
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