My FT column this week is on bank nationalisation (and, for regular readers, contains a mea culpa on Lehman Brothers):
Four months is a very long time in financial markets.In mid-September, as the credit crisis swirled around Wall Street, I wrote a column recommending that Hank Paulson, the former US Treasury secretary, refrain from bailing out Lehman Brothers. He did indeed let the investment bank go under, and the rest is history.
Looking back, I still think Lehman should have been allowed to fail, but I was wrong not to grasp that it had to be done in an orderly way. Once the chances of a private sector takeover were exhausted, intervention was required to prevent chaos.
Now we are back where we started, this time with large commercial banks instead of Wall Street brokers.Both the UK and US governments face pressure not merely to bail out these banks, which they have already attempted, but to nationalise them. This episode of nerves broke out after investors were told by Royal Bank of Scotland on Monday that it faces a £28bn loss for 2008.
Share prices in UK high street banks have fallen so sharply – leaving RBS with a market capitalisation of about £4bn and Barclays worth £6bn – that some financiers and politicians are calling for the UK government to end the uncertainty and take them into public ownership.
There have been similar calls in the US, after Citigroup and Bank of America disclosed big write-downs and large banks including State Street appeared not to have enough equity to ride out a big recession. It is now extremely hard for such institutions to raise common equity, which is what they need, on stock markets or by private placement.
Unlike in the Lehman case, I do not think governments should allow big banks that are cornerstones of their economies to go under. If the UK government has to follow the example of the Irish government in the case of Anglo Irish Bank and take over at least one big bank, so be it.
But I do not believe any country should be eager to nationalise its banks, except in extremis.
You can read the rest here and comment below.
