Another Fine Mess

As European banks receive another round of government assurances, the purpose of funding is to insure toxic assets and stimulate lending. Despite protests from some quarters of society, these bailout packages, by shifting default risk from the banks to the governments that back them, have kept fear of bank runs at bay, according to an article in the Economist. Still, not enough credit is flowing. Foreign lenders, previously a huge source of loans, hover about home markets, and even domestic lenders want to hold on to capital to survive in tough, illiquid markets. Simultaneously, shareholders want to dump their shares before additional government interventions further dilute their ownership. With government stakes reaching 70 percent at some of the leading financial institutes of the world and the need to recapitalize nowhere near subduing, nationalization – its negatives notwithstanding – may become the only viable option for the banking sector. – YaleGlobal

Another Fine Mess

Fears of nationalization stalk the banking system
Tuesday, February 3, 2009

Click here to read the article in The Economist.

Copyright The Economist Newspaper Limited 2009