Learning a thing--but not two--from Kazakhstan on banking
Thursday, June 10, 2010 at 12:09AM 
FT column.
Call-out text states it plainly enough:
Until recently it was generally assumed that when a bank ran into problems it would either be bailed out or go spectacularly bust.
Well, unlikely Kazakhstan provides a better example: getting the creditors to suffer the pain. They absorb all or most of the losses, keeping the bank a going concern.
Says Tett, “In America, there is every chance that the future financial reform bill will contain some features that would impose creditor losses in the future.”
The big question? Is this discipline imposed by a central 3rd party or the courts.
Investment groups hate the notion, but Tett calls it the least bad option.
How democratic.
Meanwhile, she laments the alternative that Europe seems to be pursuing: “a system based on ever tighter bank rules and implicit taxpayer bail-outs.”
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Reader Comments (1)
What this describes is very similar to a Chapter 11 bankruptcy, which I have thought from the beginning would have been a better solution for our insolvent banks too. I work with most of the large consumer banks, and I firmly believe that restructuring like our Chapter 11 (banks have some different bankruptcy proceedings, but Chapter 11 should be the conceptual model) would have given superior results. The policy discussion has often failed to make the very important distinction between liquidity and insolvency: The Fed's actions primarily addressed liquidity and I fully support their actions, while Treasury's actions were fixing insolvency problems that should have been handled by bankruptcy. That would have left secured creditors in charge instead of the federal government, which ultimately yields better decisions.