DEXIA now looks certain to be the first big casualty of this year’s bank funding freeze.
Already part-owned by three governments due to a prior bailout in 2008, the bank now faces the prospect of being further nationalised, broken up and restructured. But for all the talk of solving the “too big to fail” problem in the four years since the last crisis, the bank resolution procedures that should keep taxpayers off the hook are nowhere near ready.
Eurocrats are not talking about how to wind up teetering lenders, but how and when to get more public money into them. This week, JP Morgan analysts revised up their estimate for exactly how much should be pumped into banks: they now reckon European governments must throw €180-€230bn into the hole left by an impending Greek default.
Banks need to seize the initiative. The chances of a disastrous disorderly default – in which Athens simply runs out of money – are rising. But rather than waiting for politicians to organise “private sector involvement”, lenders must use their common sense and take a realistic haircut, as soon as possible. Sticking to the 21 per cent write-down agreed by euro leaders, as Dexia and France’s two biggest banks are doing, only exacerbates uncertainty rather than stemming panic.
Politicians have shown they cannot be trusted to manage Greece’s bankruptcy.
Banks must make their own plans.