Why did anyone bother with the rule in the first place then? Wasn't this exactly the kind of situation it was supposed to cover? It's not like an Italian financial crisis was off the radar when this rule got written.
> Does that really mean we should let a massive bank (or multiple banks) go bankrupt?
We've let pretty much everything else go bankrupt in the past eight years. Maybe we should try a it with a bank or two?
> Given the global financial system is so interconnected, only a fool...
That's exactly what the banks said last time to get their bailouts. I think only a fool would believe them again.
(edit: quotes/formatting)
2. Bankruptcy will lead to local deposit funds having to reimburse €100,000 per person, per bank. Which will ultimately be paid for by the taxpayer. It might actually be cheaper for the taxpayer to just save the bank.
At least in Belgium, the government actually got quite a good return on the emergency funds they lent to the banks during the financial crisis. So we're looking at a possible return vs a certain loss.
I'm not saying all banks need to be bailed out, but it's only prudent to keep the option on the table if required. The world would be a different place if post Lehman governments would have let banks collapse.
It might actually be cheaper for the taxpayer to just
save the bank.
Theory 1: The [banking system / market / bankers paid seven-figure salaries] actually had little to no understanding of what they were doing. Complicated derivative products and credit default swaps were mispriced because nobody really understands the maths and their risk models are all wrong.
This suggests, if we want to prevent the problem from recurring, the legislative intervention should be to either ban complex financial products or require much higher capital reserves for banks gambling on them.
Theory 2: The [banking system / market / bankers paid seven-figure salaries] had accurate models and understood the risks. They just decided they could go to the roulette table and put a trillion dollars on red, and the government would bail them out if the ball landed on black.
This suggests, if we want to prevent the problem from recurring, the legislative intervention should be to make bailouts radically less attractive for the people who benefit from such gambling. This could mean not providing bailouts, so banks that gamble and lose go bankrupt; or could involve some of the many other disincentives legislators have at their disposal.
If you follow this theory, and you adopt the policy that there will be no bailouts, you have to let the bank fail to prove to people that you really mean it.
How, exactly? And if that's the case, isn't it already the failure that we're letting DB hold the world hostage?
The world would be a different place if post Lehman governments would have let banks collapse
Why does the solution to this scary, foreboding fate always revolve around making sure the bankers stay fabulously wealthy?
For 90% of the world (ahaha), winter has already been here since 2008. It's about time the banks were exposed to the weather, I'd say.
You clients start doing more and more of their business with an Italian bank that has poor capital reserves and a shoddy loan book and is losing money, but offers better terms to customers. The bank looks like it's going to fail, so the Italian government props it up with cheap credit and buys it's bad loans at above market rates so that it can stay in business - and keep winning business off you because it's still offering better terms to customers. Plus now those customers know the bank won't go bust and they can rely on it because the Italian government will support it no matter what.
The customer's business is being indirectly subsidised by the Italian government through below-market banking fees. Why should they ever do business with you again?
Like Deutsche Bank? They were chock-full of bad derivatives, Greek bonds, and whatnot.
Most of Italy's big banks are fine. They went just fine through the subprime crisis and the Greek bond crisis, and the government never had to save them.
It's the smaller banks that have problems.
[1] http://www.bloomberg.com/view/articles/2012-05-23/merkel-sho...
Does that really mean we should let a massive bank (or multiple banks) go bankrupt? Given the global financial system is so interconnected, only a fool would think this would have no impact to the german economy. I don't mind rules, but every rule is meant to be broken if the situation warrants it.