In Australia when a bank runs low on capital they're given a warning to raise capital within a short period of time.
If the bank management is unable or unwilling to comply, the assets of insolvent banks are simply transferred to another bank. In a split-second the shareholders of the under-capitalized bank own little or nothing. Almost always nothing.
For reasons I don't comprehend bank investors and bank managers in America believe they are entitled to repeated "do overs" at taxpayer expense. Worse still, our government is too cowed to pull the plug on these financial cesspools or give them a hard deadline when they cross the line.
Citibank, as an example, should have vanished eight years ago when they were reporting record profits with levels of capital below regulatory levels. This certainly boosted returns for shareholders in the short-term - but we now discover this was at taxpayer expense.
During the same time period National Australia Bank, either the first or second largest bank in Australia then, pulled a similar but lesser stunt of operating on the minimum capital required. Then losses in currency trading put them under the line. The Reserve Bank gave NAB 90 days to make things right. NAB management had little alternative but to sell some of their choicest assets in order to meet their deadline. Furious NAB shareholders quickly dumped NAB management and put sensible people in charge.
What's sad is that in America, with our welfare mentality, I'm certain many would have blamed the Fed if they had given Citibank this shock-treatment, rather than blaming the incompetent management of Citibank. No doubt Citibank shareholders would have demanded compensation from the taxpayer because the government enforced banking regulations.
The problem is, without this "icy slap across the face" for those who play fast and loose, your economy quickly develops major instabilities leading to a collapse, and you end up where we are now.
But because the Australian Reserve Bank forced banks to maintain prudent capital levels, they're not bailing out their banks with taxpayer funds. Meanwhile in America, bank shareholders complain about the terms and price of the government welfare they're receiving. That's a sick culture.
AI
