Bank for international payments (BMP) announced that national governments have done little to settle the problems in their banking sectors, and she is entitled. European Summit concluded that there can be no financial federalism, by which to transfer funds between the banking system if they need recapitalization. Such is the reality. It seems difficult to outline the policy in response to the first while the second run.
However, any systemic banking crises occurred recently in developed countries (including the crisis in the U.S. savings and loans in Sweden and Japan in 90 years) were solved only when there was a process of sifting and distribution, which was led by government and state intervention to deal with cases of insolvency. To meet the need for restructuring of banks across Europe with no financial transfers between member states is difficult but not impossible. Decision of the banking problem in Europe we can offer to create a European Troyhand – trust institution to be established by those countries in which plants are the main banks in mainland Europe (the UK is the case, since most of its Banks develop only limited activity on the continent).
Assessment of balance
Troyhand (Troyhand was the Privatization Agency in the former GDR – bel. line.) Will have three tasks.
First, we otsyava all major cross-border or stressed banks will assess their balances in full comparative basis (including results of tests for durability), will publish what is found for specific banks and this will signal where and how capital is required. Such control activities of national authorities, even on the basis of an agreed methodology would be inefficient to the major incentives for the protection of the leading banks in the country, which would also drive out competition surveillance bottom. This is the main reason for the control authorities in Europe still have not answered.
Second, will serve as a catalyst for intergovernmental negotiations rekapitalizirane and restructuring of financial institutions that are insolvent. Such as Fortis at the end of 2008 showed that the arrangements for sharing the burden concluded for this reason, possible, but that they may remain outstanding where no trusted party to manage the process.
This will Troyhand. Actually, since it will work with all major cross-border institutions and emphasized in continental Europe and will announce the results – about 40 in number, national governments will have an incentive to take their share of the burden, where a minority interest to not be punished by markets and governments in cases where majority owners.
None of the current institutions of the EU will mandate and capacity necessary to execute such tasks, including bank and the government, whose creation is due soon which will be needed years to acquire the necessary severity. It is important that the American corporation, or trust the authorities in Sweden and Japan will be a temporary institution that will exist long enough to resolve the crisis.
Third, Troyhand will manage on behalf of national governments and institutions those assets, which anyway are state property. This will provide the necessary neutrality and professionalism by politicizing the barriers to banking. Will extend and market pricing and supply of liquid assets, it will be out of the competence of a single country. Furthermore, the presence of supra-national authority for state trust banks and bank assets will decrease the danger of too long or retention of the institutions in the public sector, or exit from competition when one country decides to privatized – are threats both real and harmful in the absence of coordination at European level.
Bank Troyhand will not need the requirement of unanimity, as some European countries will have to join to make it work. In our critical mass will include Austria, Belgium, France, Germany, Italy and the Netherlands plus possibly Spain and Sweden.
Hope that the combination of accurate shots and more steep curve of the profit will „cure“ the current conditions of European banks, is dangerous magical thinking. Establishing the European Bank Troyhand way to be unlocked political action prevented by the competitive incentives of national governments. Otherwise, Europe will again be risking the lost decade of Japan.
Adam Pousan Nikola Verona, c. Financial Times
* The authors are respectively Deputy Director of the Institute for International Economics in Washington and Peterson Fellow at Bruegel Institute