As per my post, bailouts, fractional reserve central banking and fiat currency together allow banks to take the risks they do. The behaviour of banks is merely a symptom of the disease that is our monetary system. Regulating banks is like treating the cough of a lung cancer patient.I don't think that banks knowing that there is no bailout would stop this from happening again.
Banking boards will continue to take risks as their salaries are like a call option on the banks performance. If the bank does well, they pay themselves handsomely. If the bank does poorly, they walk away (usually with a nice golden parachute)
It doesn't stop amazing me how much faith people have in regulation. Regulators have failed to do anything about passed financial crises (large or small) let alone foresee them. How can you argue that more regulation is the answer when the current regulatory system has failed every time?Id do agree that it is the job of the regulators to put a system in palce to control this risk taking so that it is measured and appropriate.
Ireland’s difficulties arose because of a vast property boom financed by cheap credit from Irish banks. Ireland’s three main banks built up 2.5 times the country’s G.D.P. in loans and investments by 2008; these are big banks (relative to the economy) that pushed the frontier in terms of reckless lending.
The banks got the upside, and then came the global crash in fall 2008: Property prices fell over 50 percent, construction and development stopped, and people started defaulting on loans. Today roughly one-third of the loans on the balance sheets of banks are non-performing or “under surveillance”; that’s an astonishing 80 percent of gross domestic product, in terms of potentially bad debts.
The government responded to this with what are now regarded — rather disconcertingly — as “standard” policies.
They guaranteed all the liabilities of banks and then began injecting government funds. The government is now starting a new phase: It is planning to buy the most worthless assets from banks and give them government bonds in return. Ministers have also promised to recapitalize banks that need more capital.
The ultimate result of this exercise is obvious: One way or another, the government will have converted the liabilities of private banks into debts of the sovereign (i.e., Irish taxpayers).
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