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Written by José D. Roncal
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Tuesday, 31 March 2009 17:02 |
While the G-20 world leaders meet and discuss ways to reverse the deep global recession, others like Nouriel Roubini, the New York University professor, focuses on what's happening back home. He predicts that U.S. stocks will continue to fall and that some major banks will go belly up with loan and securities losses reaching $3.6 trillion.
Others push for nationalizing the banks, but whether that's a good thing or not, depends on who you are talking to. The government is already so deeply embedded in the banks through guaranteeing debt and TARP money, it's hard to predict how banks will be able to once again function as private entities.
As the economy continues to decline, banks are being forced to weigh their options and examine how much capital they will need, what assets to sell. We suspect that the majority of banks will work out plans on their own, but that a few will have to rely on government support.
But questions remain about how banks will be able to attract new, private capital. Over the last six months, there isn't much evidence that they've raised any significant capital. In fact, most of the debt they've raised has come with government guarantees. With new, stricter regulation coming in the future, which will require banks to have higher capital ratios, that means it will be more expensive to sell debt. And what will happen once the government guarantees are gone? Even more expensive debt.
Is nationalizing the banks the solutions? We're not convinced that it's the best answer. The biggest problem today is that five major banks have controlled two-thirds of all mortgage originations and two-thirds of credit-card loans outstanding.
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