Third, discussions are being held to prepare the next steps, namely how to arrange the resolution of failed banks and support for ailing ones.

Furthermore, the point was not to help private banks get rid of their troubled assets.

And, with a single supervisor in place, the ESM will be permitted to inject capital directly into troubled banks.

Third, discussions are being held to prepare the next steps, namely how to arrange the resolution of failed banks and support for ailing ones. Ministers recently agreed upon a template for action.

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

The US Troubled Asset Relief Program (TARP) was an opportunity to force banks to disgorge bad assets and thus repair the credit pipes.

Guide my faltering... Pa.

Most important, supervision suggested some potential responsibility to recapitalize problematic banks, and thus involved a fiscal cost.

Now, however, a new credit would serve only to make the burden of government debt unsustainable what is needed is a purchase of all or some of the problematic Cypriot banks.

But the steep fall in the value of Italian and Spanish banks holdings of government debt, combined with mounting bad loans as a result of recessions exacerbated by punitive borrowing costs, is forcing the banks to rein in business lending further.

Not all banks voluntarily loaded up on distressed government bonds some were pressured by supervisors, others by governments but many have made unwise bets.

Breaking the negative feedback loop between distressed sovereigns and distressed banks whereby bank rescues exhaust fiscal resources and make it likely that the next financial institution in trouble will not be able to count on government support requires ensuring that it will not recur even in extreme circumstances.

Government subsidies for private bad banks, or public bad banks to clean up private banks toxic assets, are a bad way for taxpayers to transfer money to troubled banks compared to normal capital injections.

Disappointment over the effects of the TARP has already destroyed popular and Congressional support for more public money to recapitalize the banks.

Disagreement among and between heads of state and the ECB over the Bank s purchases of distressed sovereign debt have only added to the uncertainty.

The crisis affects non Europeans too for example, concern over the exposure of American banks and money market funds to troubled European banks is harming US financial markets.

With the housing collapse lowering spending, the Fed, in an effort to ward off recession and help banks with fragile balance sheets, has been cutting interest rates since the fall of 2007.

TOKYO What should central banks do when politicians seem incapable of acting? Thus far, they have been willing to step into the breach, finding new and increasingly unconventional ways to try to influence the direction of troubled economies.

The money for recapitalizing distressed banks would now come primarily from creditors, not European taxpayers, with a pecking order to specify which lenders would be repaid first.

The old NPL problem was resolved, primarily by establishing asset management companies to take over doubtful assets, and injecting new capital into the commercial banks.

CAMBRIDGE Now that the European Union and the International Monetary Fund have committed 67.5 billion to rescue Ireland s troubled banks, is the eurozone s debt crisis finally nearing a conclusion?

But the stress tests and targeted TARP money, the path of least resistance taken, enabled the banks to earn their way back to solvency.

The European Union has finally committed itself to helping its financially distressed members.

It loaned on little collateral to shaky banks.

In the rest of struggling Europe, price adjustment is barely noticeable.

It could also be relevant to purchases of debt from distressed member states.

Banks

The banks.

Banking!

Prices of bank shares and the Euribor OIS spread (a measure of financial stress) signal a profound lack of confidence in the sovereign debt of distressed countries, with yields on ten year Greek bonds recently hitting 25 .

Moreover, the level of non performing loans in Chinese banks was quite low when Lehman Brothers collapsed, which allowed Chinese policymakers to let it increase in order to battle the crisis.

How to Bail out Good Banks and Let Bad Banks Fail

Our lending can provide breathing space for countries in difficulty.

But it was the very uncertainty which distressed the others and excused their behaviour.

Now, reported NPLs amount to little more than 1 of assets.

For example, in financially distressed Spain, unemployment now exceeds 20 .

Investors in Europe s troubled economies are already getting enough as it is.

The real cost of the crisis is not measured by the profit and loss statement of any central bank or by whether or not the Troubled Asset Relief Program (TARP), run by the Treasury Department, made or lost money on its various activities.

For example, the Troubled Asset Relief Program (TARP) originally targeted the purchase of complex securitized assets that had lost value and stopped trading, but had to be partly altered to direct infusions of capital into banks.

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

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