The banks in question of course are dead set against being nationalized and are pressuring the Obama Administration to bolster flagging confidence in the US financial system.
The Key Components are Political Consensus and Transparency
According to the Federal Reserve Bank of Saint Lewis’ analysis (Resolving a Banking Crisis, the Nordic Way), the key components of the apparent success that the Nordic countries had in cleaning up their banking cisis were:
1)Political Consensus. A key step to solving a banking crisis is the building of bipartisan political consensus to support the actions needed to maintain confidence in the banking system. In the Nordic case, this involved establishing a financially and politically independent crisis resolution agency to handle both communication with the public and bank restructuring.
2)Transparency is crucial. Regulators need to refrain from concealing both the extent and the nature of the problem. They need to require open accounting for all expected losses and write-downs for all banks as early as possible. They also need to be very transparent about support actions through a highly visible public government guarantee for the obligations of the banks, including deposits and borrowings.
3)Seek private sector solutions whenever possible. Regulators need to continue seek private sector solutions wherever possible, including mergers and acquisitions, and need to avoid liquidations.
What the Obama Administration has so far failed to achieve is;
a) A bipartisan political consensus about what needs to be done. There is much less resistance to nationalization in Europe (such as in France or the UK), while the myth that the US is a bastion of capitalism and the free market runs very deep. Nationalization has to be seen by the political majority (Democrat and Republican) in Washington, the banking regulators (Treasury and the Fed) as well as the voting public that this is the only remaining viable alternative. One of the major reasons it took Japan so long to address its banking crisis was the simple lack of political will.
b) Transparency. The extent and the nature of the problem bank by bank is still unknown, i.e., there is no transparency. With no transparency, traders and investors will continue to make their own assumptions about the viability of each institution.
