The government could have bought the banks for cheap, stabilized them and resold them on the market. That way shareholders and employees would have lost but not bank customers.
In the US the failing banks' owners would have shared in the loss along with the govt to the extent of deposit insurance, but the remaining institutions would have been smaller, perhaps smarter, definitely better disciplined in the knowledge that they had "skin in the game."
If the banks were going to default without taxpayer help, why didn't we just nationalize them and let the share holders take the loss they themselves have set themselves up for? Then we could shoulder the cost of getting the banks afloat again, and then subsequently regain some of the cost at least by selling them (instead of just giving taxpayer money to the risk-taking share holders like we do now)
I think the govt may have been able to help with this issue.
But it would have taken the govt getting into the whole risk & diversification & bond laddering & liquidity issues at a very granular level. You know, the whole shindig about huge risks to the banking sector and responses? That, all over again.
I'll say from my perspective they were under-regulated. We can't have dumb banks throwing all their deposits into Fixed-Income with similar maturities putting their deposits at extreme risk of devaluation and interest rate risk with no hedging or laddering, and no good response to liquidity demands.
I question the professionalism of the bank's investment crew given we knew about the interest rate rise several years ago. NIRP/ZIRP could never continue indefinitely and they knew it, and we knew it.
By allowing you to restructure them before privatizing. The crisis was a failure of gouvernance. Most of these banks were going to and should have failed.
Once it was agreed that they were too big to let the situation run its course, it would have made sense to step in and actually solve the systemic problem.
Do you have any idea what the current financial situation would have looked like if the government had just let the banks collapse?
Hint: a lot like a jenga tower does just after you take away a vital piece.
Letting the entire financial system collapse might _possibly_ have led to better behaving banks in the long term(although I doubt it, people don't learn). But in the short term it would have cascaded through the entire economy and left the economy entirely non-functional.
You don't have to worry about bank runs if you're not a fractional reserve bank. People were right to not trust banks, banks were fraudsters, loaning out money that wasn't theirs, then when people caught wind of it, the system collapsed.
The real laws should have been 'banks shall not loan out money from a depositor's account' and the problem would have been resolved. Investors could have loaned out money. Insurance could have protected against bank robberies, similar to how any kind of insurance works against theft today.
They could have made the bank bond holders (rich foreign banks) take losses without affecting the normal depositors.
How can you think getting a bigger loan to pay current loan is a good strategy. It will work only if the economy improves. If the economy tanks, it is not going to work. It is only going to increase the losses for the lenders ultimately.
Bigger bank with more cash could have bought them, fixing liquidity issue. This didn't happen, suggesting that there's problems with bank's assets, not just liquidity.
That the bank failed seems to be a indication that it was not economically efficient and the market correctly removed it. That seems to be the exact thing that we want.
For some (easy to understand) reason government have taking into their heads to 'save' these institutions, but you can hardly blame that on the market as a organisational principle.
The other option is to have the bank in question issue more equity for the state to buy.
The Norwegian government for example still owns more than a third of the biggest Norwegian bank as a holdover from a much earlier financial crisis (1990), and decided not to sell down further as a strategic decision to prevent future meltdowns.
The UK similarly bought a lot of bank assets during the 2008 crisis.
I'm pretty sure the companies and people who held their money in First Republic would survive losing the money they had with them (in most cases it's only a part of their assets). I'm also quite sure the owners of the First Republic stock could afford losing the value of those stocks.
It might have been a little tough for some of them, but most would just shrug it off. I do not understand why government and other banks are so anxious about a bank or two failing? Is it because all other banks are also rotten and leveraged?
It doesn't change the fact said bank would have gone under, and people would only be reimbursed up to $250k. It is in everyone's interest for banks to remain healthy.
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