Portugal is set to spend 4.9 billion euros (£3.8 bn) to rescue its largest listed lender, Banco Espirito Santo, after posting a record loss last week.
The bank will be split up into a "good" and "bad" bank that will protect taxpayers and depositors, but junior bondholders and shareholders will be wiped out.
"The plan carries no risk to public finances or taxpayers," said Carlos Costa, Portugal’s central bank governor. "There was an urgent need to adopt a solution to guarantee the protection of deposits and assure the stability of the banking system."
The "bad bank" will hold toxic assets and the "good bank", renamed Novo Banco- Portuguese for "new bank"-, will receive a 4.9 billion euros capital injection from Portugal’s bailout fund, provided by the European Union and the International Monetary Fund (IMF) back in 2011.
Portugal, which exited its international bailout programme in May after three years of budget cuts, will use leftover funds to assist Banco Espirito Santo, which reported a record 3.5 billion euros net loss last week.
The bank made headlines following the arrest of former chief executive and patriarch, Ricardo Espírito Santo Salgado, over allegations of money laundering and tax evasion in July.Reuse content