4 ms·

Actually, the share and bondholders will be required to bail it in, under EU laws introduced a few years ago.

drb91 8y ago
Yikes. Sounds shitty for EU residents in the long term. Wouldn’t it be better to let the bank fail, ie learn from 2008 that bailing out encourages the bad behavior?
- charlesdm 8y ago
  This is actually great for EU residents, as shareholders and bondholders will (initially) be on the hook for excess risks being taken, not residents. Not all bank shareholders were wiped out in 2008, while they clearly should have based on the amount of public money some banks got.
  - drb91 8y ago
    Ahh, after some googling I see what you’re saying. Thank you!
  - ismail 8y ago
    Does the ECB hold bonds for Danske bank? The ECB and other central banks have been on a bond buying [0] 'spree' [1] If the ECB holds these bonds then technically eu monetary union citizens do have exposure. To me this seems to have been a dangerous decision by the ECB and other central banks. With their policy, could this have created a situation whereby companies that would not otherwise survive are now over-leveraged. The result being a small disruption bringing everything down with it? To put the question another way, do we have a massive bubble in corporate debt due to central bank polcies, resulting in companies that should have gone under being over-leveraged. With the ECB planning to stop the buying by end 2018, will we see a correction? [0] https://www.ecb.europa.eu/mopo/implement/omt/html/index.en.html https://www.ecb.europa.eu/mopo/implement/omt/html/index.en.h... [1] https://www.wsj.com/articles/central-banks-put-squeeze-on-sovereign-debt-market-1467847016 https://www.wsj.com/articles/central-banks-put-squeeze-on-so... Edit: According to JP morgan [3] the policy has created 'zombie' companies. [3] https://www.bloomberg.com/news/articles/2018-07-18/jpmorgan-s-erdoes-says-ecb-bond-buying-creates-zombie-companies https://www.bloomberg.com/news/articles/2018-07-18/jpmorgan-...
qubax 8y ago
Except if it is a too-big-to-fail bank and there is systematic risk, the taxpayers will have to bail it out. A bank that controls half a nation's banking is systematic. The government will bail it out. If things get bad, the EU/ECB will bail it out. One of the benefits of running large banks ( and insurers ) is "privatize profits and socialized losses". These bankers and insurers can't lose. If they gamble and win, they get the rewards. If they gamble and lose, everyone else has to foot the bill.

Yikes. Sounds shitty for EU residents in the long term. Wouldn’t it be better to let the bank fail, ie learn from 2008 that bailing out encourages the bad behavior?

charlesdm 8y ago
This is actually great for EU residents, as shareholders and bondholders will (initially) be on the hook for excess risks being taken, not residents. Not all bank shareholders were wiped out in 2008, while they clearly should have based on the amount of public money some banks got.
- drb91 8y ago
  Ahh, after some googling I see what you’re saying. Thank you!
- ismail 8y ago
  Does the ECB hold bonds for Danske bank? The ECB and other central banks have been on a bond buying [0] 'spree' [1] If the ECB holds these bonds then technically eu monetary union citizens do have exposure. To me this seems to have been a dangerous decision by the ECB and other central banks. With their policy, could this have created a situation whereby companies that would not otherwise survive are now over-leveraged. The result being a small disruption bringing everything down with it? To put the question another way, do we have a massive bubble in corporate debt due to central bank polcies, resulting in companies that should have gone under being over-leveraged. With the ECB planning to stop the buying by end 2018, will we see a correction? [0] https://www.ecb.europa.eu/mopo/implement/omt/html/index.en.html https://www.ecb.europa.eu/mopo/implement/omt/html/index.en.h... [1] https://www.wsj.com/articles/central-banks-put-squeeze-on-sovereign-debt-market-1467847016 https://www.wsj.com/articles/central-banks-put-squeeze-on-so... Edit: According to JP morgan [3] the policy has created 'zombie' companies. [3] https://www.bloomberg.com/news/articles/2018-07-18/jpmorgan-s-erdoes-says-ecb-bond-buying-creates-zombie-companies https://www.bloomberg.com/news/articles/2018-07-18/jpmorgan-...

qubax 8y ago

Except if it is a too-big-to-fail bank and there is systematic risk, the taxpayers will have to bail it out. A bank that controls half a nation's banking is systematic. The government will bail it out. If things get bad, the EU/ECB will bail it out. One of the benefits of running large banks ( and insurers ) is "privatize profits and socialized losses". These bankers and insurers can't lose. If they gamble and win, they get the rewards. If they gamble and lose, everyone else has to foot the bill.