Banks under Pressure: Are there Ways Out of the New Banking Crisis?

The global financial and economic crisis is putting Europe’s banks under growing pressure. The dismal condition of the state finances of Southern European countries “brought back” the crisis in the banking sector, in the opinion of Stephan Paul and Christian Farruggio, Ruhr-University Bochum, for banks still hold large numbers of government bonds. The proposals to overcome the banking crisis favoured by politicians unfortunately do not resolve the current problems, since they primarily deal with the amount of regulatory equity capital that banks should have. Instead, there should be a greater focus on supervising the risks taken by banks in a framework of proactive control. Gerhard Schick and Jan Weder, Bündnis 90/Die Grünen, believe that it is important to find separate solutions to the banking and sovereign debt crises, although stabilisation of the banks is a fundamental building block in this process. Unfortunately, politicians have failed to find new options that lie between the extremes of “bail-out” and “no bail-out”. Jochen Zimmermann, University of Bremen, would like to engage with the incentive structures and business models of the major private banks in a number of ways: by separating the state and the banking economy, via extensive bans on derivative trading and by strengthening the links between action and liability. Harald Hau, University of Geneva and Swiss Finance Institute, and Bernd Lucke, Indiana University, Bloomington, and University of Hamburg, believe that Europe has a choice between higher inflation and the possible bankruptcy of individual states within the Eurozone.