The blog has given up counting the number of US banks that have failed in recent weeks, away from the headlnes. Ken Lewis, CEO of Bank of America, predicted last month that half of all US banks would fail, and he is well placed to know.
Bank rescues are also rising across Europe. The German government last night supported a €50bn ($68bn) rescue for Hypo Real Estate, the country’s 2nd largest real estate lender. Whilst France’s biggest bank, BNP Paribas, took control of Fortis Bank in Belgium and Luxembourg for €14.5bn after a government rescue failed. Germany also followed Ireland’s example in guaranteeing bank deposits, to avoid further bank runs this morning.
Against this dreadful trans-Atlantic background, the UK government is moving to address one of the fundamental issues. The Financial Times reports today that Finance Minister, Alastair Darling, is considering a taxpayer-funded ‘recapitalisation of Britain’s banks’ as part of ‘some pretty big steps which we would not take in ordinary times’.
Darling impressed the blog in August with his realisation that the ‘global economy is at a 60-year low’. His move mirrors the successful Swedish response to a similar banking crisis in the early 1990′s, which was also caused by a bursting property bubble.
This model only allowed the strongest banks to survive, and GDP still fell by 5% over 3 years. But its use of government money for selective recapitalisation is now viewed ‘as one of history’s most successful financial system bailouts’.