lunes, 11 de noviembre de 2013

Bail In


To a greater or lesser degree, all of us have suffered this dreadful crisis. We have plenty of reasons to be upset and apportion blame. Governments have been forced to bail out banks in order to prevent an unstoppable systematic crisis. These bail outs have cost the governments and taxpayer enormous amounts and risen public debt levels to figures never known before. Nevertheless, many countries have reached a indebtedness close to 100% of their GDP.
Then, somebody could say: let banks fail. Why must they be bailed out? 

To be honest, we must think a minute so as to realize that there is no point in that. Just let's remember the bankruptcy of Lehman Brothers and everything that came afterwards. Nowadays, banking is the circulatory system of the world.

This situation should be prevented in the future. The financial industry should be subjected to a strong regulation so as to the banks manage to recapitalize themselves, that is, we have to stop thinking about bail out and start thinking about 'bail in'. What's more, the governmental bail out programs should disappear and be replaced by any sort of internal mechanism. 

How to do that? Coming up with a range of financial instruments or tools so that the bank recapitalizes himself  in difficult times.

The rules of the play are being changed. We have to stop thinking about bail out and start thinking about 'bail in' and seek a strong new regulation.

In the next post I will discuss some topics and explain some of these financial tools such as some known as Contingent Convertibles Bonds (CoCos) 

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