A good example of what matters, which many people may not have heard of, is the acquisition of one Spanish bank by another, for the grand sum of 1 euro. The target, Banco Popular, was essentially bankrupt. This caused a great deal of justified concern as the European banking system has not yet tested a set of rules designed to limit systemic risk. These rules were established after the financial crisis, when the failure of even a small bank could have rocked the financial system as a whole.
Instead, with the failure of Banco Popular, the fifth-biggest bank in Spain, the rules worked. On one hand, bondholders took a hit and stockholders were wiped out, which was bad for them. On the other hand, depositors were protected, and the assets were transferred easily and with no systemic disruption. In other words, the system worked very well, which is reassuring since many European banks remain at risk. Nice to know the system works.
The bank failure and acquisition, as opposed to the three events noted above, is a great example of news that matters but doesn’t get a lot of coverage. As we move forward, keep in mind that what shows up on the front pages may not actually be what matters to you as an investor.
Brad McMillan is the chief investment officer at Commonwealth Financial Network, the nation’s largest privately held independent broker/dealer-RIA. He is the primary spokesperson for Commonwealth’s investment divisions. This post originally appeared on The Independent Market Observer, a daily blog authored by McMillan.