Bank recapitalisation alternatives

Anonymous1987

An article in todays Irish Times mentioned the option of using Anglo Irish Bank to purchase toxic assets on the major banks balance sheets. Another alternative put forward was insuring banks against losses on loans. This was seen as a faster remedy than the "bad bank idea" as it didn't require immediate valuations of the bad loans that will be problematic in the current illiquid market. The article is available at:
http://www.irishtimes.com/newspaper/finance/2009/0124/1232474679309.html

Either of these alternatives offer better solutions than the current strategy of government recapitalisation which is bringing us closer to nationalisation of the countries banks.

The insurance plan in particular offers fast action. If the riskiest loans are insured against losses then in effect the risk is removed while the banks still benefit from holding the assets on their balance sheet. This in turn could have a positive effect on share price and offer the banks a better chance of raising capital in the market.

Afuera

Anonymous1987 wrote: »

Another alternative put forward was insuring banks against losses on loans. This was seen as a faster remedy than the "bad bank idea" as it didn't require immediate valuations of the bad loans that will be problematic in the current illiquid market.

The article proposes that the State insure the banks against losses on its loans (clearly because no other entity would want to touch it with a barge poll). How much should be charged for such insurance and why would the market believe our State, which is fast running out of its own funds, would have enough to cover the losses in the banks? It's been estimated that Anglo alone will have somewhere in the region of EUR 15-20 billion bad loans over the next few years.