This week, banks ran into yet deeper crisis: the sector is in more trouble than was feared. As Ben Bernanke, chairman of the US Federal Reserve, noted in a speech in London this week, however, economic recovery will not begin until the financial sector recovers its health. Governments must act.
In October, following a British lead, governments around the world recapitalised their banks. This drastic measure saved the sector from collapse. But, as the events of this week have demonstrated, the banks are still on the ropes.
Bank of America required $20bn of capital and guarantees from the US taxpayer and Anglo Irish Bank was nationalised to halt a run by depositors. Deutsche Bank, meanwhile, revealed striking fourth-quarter losses. Banks are not lending, but are hoarding capital in readiness to absorb losses from existing bad loans and securities.
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