"If you're going to panic, do it fast and beat the crowd." ~ Jesse Livermore

Thursday, December 20, 2012

Banking Union to Solve Euro Zone Crisis?

Don't Rely on Banking Union to Solve Euro Zone Crisis - NYTimes.com: " . . . Conventional wisdom has it that the euro zone needs a banking union to solve its crisis. This is wrong. Not only are there alternatives to an integrated regulatory structure for the zone’s 6,000 banks, but centralization will undermine national sovereignty. The rallying cry for a banking union sounded this year when it seemed that the euro zone might break apart. Advocates of such a union said that it would break the “doom loop” connecting troubled banks and troubled governments. This week, E.U. countries will meet to discuss the terms for a single supervisor for banks, the first stage of a banking union. There are two parts to the doom loop: when banks go bust, their governments bail them out, adding to their own debts; and when governments become over-indebted, their lenders get sucked into a vortex, as their balance sheets are full of sovereign debt. In its fullest incarnation, a European banking union would break the first part of this loop. There would be a central mechanism to recapitalize troubled banks or close them down. There would also be a single deposit guarantee scheme. The cost of dealing with banking crises would, therefore, be borne by the whole euro zone rather than by national  . . . " read more here

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