The bailout of banks led to a wave of mergers.

Foreign bank mergers have proved poisonous for euro zone central bankers.

And that cleanup will expose more of the rot in banks current operations.

Indeed, perhaps a better explanation is that instead of creating more room for central bankers, the banking rescues narrowed their political room for maneuver.

As a result, European banks have suffered from massive write offs on toxic American securities.

This new prominence has also forced some central bankers to reassess their decision making processes.

One is to exclude bank rescues altogether only creditors would have to pay for bankers mistakes.

Some of the most respected banks have been exposed as perpetrators of moral fraud hence the demand for a new regulatory framework.

Worse still, much of the money flowing into the banks to recapitalize them so that they could resume lending has been flowing out in the form of bonus payments and dividends.

In the past, government bailouts have typically protected all contributors of capital of a rescued bank other than shareholders.

That means more debt restructuring and more bank closures now, rather than watering down proposals to rein in freewheeling markets.

The mortgage crisis and the credit crunch have led to bailouts for the banks and the nationalization of housing finance and insurance.

From banks perspective, the most obvious lesson was the need for a strong national government to bear the potential costs of a rescue.

Thus, in addition to an orderly resolution regime for banks, Europe must also implement early orderly restructurings of distressed sovereigns public debt.

Home regulators and lenders of last resort are increasingly worried about their potential exposure to losses in banks overseas operations.

Subjecting banks, some of which are still ailing, to new regulation may lead them to curtail lending even more, thereby further weakening the pace of economic recovery.

Will banks be willing to part with the assets at a low enough price to attract private investment? And would doing so force larger write downs, requiring banks, in turn, to ration credit and thus harming the economy?

Because insolvent banks were kept alive through government bailouts and guarantees, Japan provided the wrong incentives to its financial institutions.

These loans earn the banks a high return when the economy is strong, but are protected from losses by government bailouts when the economy weakens.

The LTRO enabled Spanish and Italian banks to engage in very profitable and low risk arbitrage in their own countries bonds.

This has been the purpose of the vast bank bailouts in the US and Europe, followed by several rounds of quantitative easing, by which central banks print money and pump it into the banking system through a variety of unorthodox channels.

And bank bailouts, involving the direct use of public money to recapitalize failing institutions, are even more costly and politically unpopular.

Regulators primary tool to enforce compliance was their authority to reject non CRA compliant banks requests for new branches or mergers.

growth in corporate welfare, from bank bailouts to ethanol subsidies to a continuation of agricultural subsidies, even when those subsidies have been ruled illegal by the World Trade Organization.

In the 1990 s and 2000 s, internationalization promised to produce a new landscape, in which a small handful of banks would once again divide up a single global market.

Debt write downs and guarantees will inevitably bloat Germany s government debt, as the authorities are forced to bail out German banks (and probably some neighboring countries banks).

How to Bail out Good Banks and Let Bad Banks Fail

Delaying bank restructuring is costly, in terms of both the eventual bailout costs and the damage to the overall economy in the interim.

Of course, that is an argument against badly designed bank bailouts, like the one in America, which has cost US taxpayer hundreds of billions of dollars, much of it never to be recovered.

Analogous guarantees and bank bailouts have occurred in the other major economies (the ECB does not play this role for Europe national governments do).

When banks stopped providing short term liquidity to other banks and industrial companies, central banks filled the gap.

Regulators, meanwhile, are now starting to require banks to develop their own internal ratings processes. The problem is that few institutions have the tools and expertise to do this alone.

This is clearly maladaptive, and it explains why the massive injections of liquidity by advanced country central banks are failing to jump start economies and create more jobs.

In addition to bailouts and toxic asset plans, governments worldwide want central banks to monitor macroeconomic and overall financial sector risk (as opposed to focusing on individual firms).

Other creditors, too, will continue to provide financing, because they expect that the (national) authorities will intervene either by providing emergency funding or by arranging a merger with another institution before the bank fails.

It makes no sense for banks to foreclose on homes when there are workout options whereby people could stay in their homes and banks could recover far more money.

Financial support from higher levels (government) all too often takes the form of help not to change (bailouts of too big to fail banks, for example), rather than help to change.

The inter bank market dries up, as banks lose trust in one another.

Banks in the eurozone came under pressure, and interbank tensions increased.

At risk is everyone who has a job in the UK, as well as all financial institutions that have significant operations there including a huge proportion of all global banks.

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