To protect commercial banks from risking their own solvency (and the whole country s solvency besides) once again, Richard Robb suggested that a small tax on banks short term debts be imposed in order to deter banks from over borrowing.

First, sovereign bonds held by banks are treated as risk free assets under EU rules for calculating banks solvency and capital adequacy levels.

Without a return to growth, they cannot quell investors doubts about their fiscal sustainability and their banks solvency.

The ECB s task is to provide liquidity to banks, while the EFSF and ESM are designed to absorb solvency risk.

Indeed, more often than not, the banks that failed or had to be rescued in the wake of the 2008 financial crisis had solvency ratios higher than those of banks that remained standing without assistance.

A Greek default would threaten to sink them, too, for it would raise immediate concerns about the solvency of Europe s systemically important banks and insurance companies.

Many of the countries that are piling on massive quantities of debt to bail out their banks have only tepid medium term growth prospects, raising real questions of solvency and sustainability

Finally, solvency rules should be complemented by an obligation that banks issue a substantial amount of non collateralized debt on the order of 100 of their capital that is convertible into equity.

So why, in the absence of solvency fears, do capital inflows to America continue?

But governments soon realized that the main issue was solvency.

Of Banks and Bailouts

The End of Banks?

Only a government that is sufficiently powerful, in terms of legal authority and solvency, can do so.

Only a government that is sufficiently powerful, in terms of legal authority and solvency, can do so.

Converting some portion of debt to equity under predetermined solvency threatening conditions would provide an extra layer of protection.

Mistaking a solvency problem for a liquidity shortfall, Europe has become hooked on the drip feed of bailouts.

Otherwise, a liquidity run would create solvency problems for all the big eurozone debtors.

Easier monetary policy may boost liquidity, but it will not resolve the solvency crisis.

The same crisis looks like a solvency crisis for those who are geographically distant.

The level of uncertainty about asset values, solvency, and the connectedness of balance sheets that prevailed at the time was extraordinarily high.

But the liquidity crunch was not the only problem there was also a solvency problem.

And, if Spain is at serious risk of default, government solvency is at risk throughout the eurozone except in Germany.

Fifteen of the largest banks choose Russia

After an initial rally, Brazilian interest rates have settled at levels incompatible with long term solvency.

The banks rob people, and people rob the banks.

Doubts about the Irish government s solvency would then disappear quickly, and its guarantee of bank deposits would no longer look so shaky.

There is little chance that banks will re lend to these non banks the funds they borrowed from central banks, given these banks own severe liquidity problems and mistrust of non bank counterparties.

Elimination of Glass Steagall then allowed commercial banks to encroach on the investment banks other traditional preserves.

First, banks still have few reliable means of checking borrowers creditworthiness, including previous loans from other banks.

The implicit subsidy to banks means that German banks have an advantage over those of other countries.

We walked on the banks of the Thames.

We played on the banks of the Thames.

Europe s Zombie Banks

These banks are

Taming Europe s Banks

When banks stopped providing short term liquidity to other banks and industrial companies, central banks filled the gap.

The bailout of banks led to a wave of mergers.

How to Bail out Good Banks and Let Bad Banks Fail

Spain, Italy, and the eurozone periphery face unprecedentedly high real borrowing costs, which are preventing a recovery in investment and hence economic growth. Without a return to growth, they cannot quell investors doubts about their fiscal sustainability and their banks solvency.

While normal banks need an equity asset ratio of at least 7 , investment banks typically operated on a ratio of only 4 .

The banks these banks are now consolidated, and that strengthening of the banking system has attracted a lot of investment from outside.

Collectively, they have extended hundreds of billions of dollars in short term loans to both traditional banks and complex, unregulated investment banks.

The market share of state owned banks is 85 .

There are many ways of curbing big banks excesses.

Of 31 commercial banks, only five are domestically owned.