The link between sovereigns and banks must be severed – in other words, no more bailouts. That is the only way to protect governments’ solvency and to recreate a proper, value-creating banking system. Tragically, nobody is listening; Spain is bailing out even its non-systemic banks.
It should instead have forcibly converted their bonds into equity, imposing a bail-in. For once, the EU is right: the bailout culture must end – yesterday’s policy proposals for new, cross-border bankruptcy (or resolution) procedures to allow even the largest failed banks to be wound down in an orderly fashion, hitting shareholders, bondholders and staff but protecting taxpayers, is excellent. This newspaper has long argued that such reforms are the most important change required to make the financial system truly capitalist once again. But Brussels’ proposals will take too long to implement.
It should instead have forcibly converted their bonds into equity, imposing a bail-in. For once, the EU is right: the bailout culture must end – yesterday’s policy proposals for new, cross-border bankruptcy (or resolution) procedures to allow even the largest failed banks to be wound down in an orderly fashion, hitting shareholders, bondholders and staff but protecting taxpayers, is excellent. This newspaper has long argued that such reforms are the most important change required to make the financial system truly capitalist once again. But Brussels’ proposals will take too long to implement.