The old pre-crash Banking system was complex, large Banks became internationalized with the Global Economy, and often used depositors savings to hand out loans to consumers outside their own national boundaries. As these banks grew, so did the need for profits, and credit. This ended when markets realized these profits were based on overvalued property prices and stocks in the US and the UK Technically leaving these Banking giants exposed to toxic debts, and the personal debts of creditors due to over-extended credit.
Governments stepped in buying shares in some cases or in other cases effectively taking over these banking giants that dominated the old era of fast Globalization.Technically keeping Banks open that lost trillions of dollars in speculating in a false bubble economy.
Many people were angry, those in debt and unable to obtain further credit faced personal bankruptcy, whilst the sudden realization that our Bankers who are traditionally pillars of good money management, had turned out to be as short-sighted and bad at money management as a compulsive gambler in a casino.
But that was then, So what is the future of these Banks?
Many Bailed out or Nationalized Banks are in reality Global Banks. That simply means although they are over exposed in one Country, they may be profitable in another Country. Citibank are a good example of this, with a presence in most Countries in the World.In most cases large Banking concerns have an ‘autonomous’ Branch in each Country, which often means that they are protected nationally, rather then Internationally:
In the last Banking crisis in Argentina, depositors found International Banks closed, and their savings gone. Irrespective of the fact many of these banks were profitable outside Argentina, leading to a trend were Argentineans today prefer to deposit funds in a protected local Bank.
With Governments effectively “owning” many of these International Banks, these overseas “Branches” could be sold off to localized interests. This was the case of Morgan Stanley that sold off its Asian-based Branch to a cartel of local Investors.This should cut the excess fat off these bloated, over-exposed Banks, and bring in additional income that should help to lower their huge debt levels. Therefore technically severing ties of these autonomous regional banks, that still remain profitable, locally.
Selling assets raises money, and could help relieve the burden nationally these failed banks have passed onto Governments via the Taxpayer. More exposed Banks could eventually become 100 percent owned by our Governments. As debts mount, and the banking system is reformed.
Governments in the long-term claim these toxic Banks will be eventually privatized once they are downsized, and profitable sections of these banks are sold off. This depends on an economic recovery, as our Governments technically bought these Banks according to the current share value.Once the share value increases, and exceeds the original price technically these shares could be sold at a profit, bringing in extra revenue to our Governments.In theory this has happened in the past, Indonesia is an example:
After the Asian Crisis of 1998, Indonesia had hundreds of exposed National Banks, that were either merged or taken over by the Government. These Banks were reformed, as local Banking laws governing Banks were. Then many were sold off at a profit to the Government, through the local Stock market.The irony of these Banking reforms were that the Banking giants that are currently broke and indebted in our Countries, took over and bought into many of these Banks.
Therefore Internationalizing the Banking system in Indonesia, although except in the case of ABN Amro, no International Bank in Indonesia has collapsed or been bought out by the National Government.
This action was requested by the IMF that granted Indonesia billions of dollars in emergency loans, loans the current Government are still paying off today. And is probably the modal our Governments are hoping to emulate, in order to save our banks, reform them and eventually sell them off at a profit.
One question still haunts both our Governments and confused taxpayers: What happens if our Economies do not recover?
The effect of huge Bank bailouts has meant that these toxic Banks are in fact owned by our Governments. Many Governments state officially they have not been nationalized, but are technically National property.If a recovery fails to materialize, then Governments can simply take over these Banks officially, by either buying out the remaining minority shareholders or by declaring them National property.
This is the worse scenario, as our Governments officially own our debts and in regards to housing, any property these banks own through private Mortgages.
Private housing today could in fact become National property, with Mortgage payments going straight to the State.
In economic terms if Banks are completely Nationalized, then Governments control the money supply, our debts, businesses and housing. Our Economy would turn into a command economy. We still will “own” our private property, but only if we can repay the debts owed to these new State Banks. In an extreme scenario our Banks could be merged into one single State Bank.
Complete control of the economy by our Governments may be the last option left, in the case of a total economic failure. It could also lead to strict controls on monetary policy, and in Countries worse affected by the Crisis, even a change of currency.