Handling Bankrupt Banks
Dr. W.A. Wijewardena
Handling bankrupt Banks: Gone are the bail-outs and enter the bail-ins
Banks are like paper castles
Banks are wonderful institutions which help people to acquire assets, make money and prosper. In the process, the prosperity of people will bring prosperity to a nation as well. But they are all built on thin paper like paper castles without solid assets of worth since all their assets are just book entries. Hence, if their paper castles are set ablaze – either by events outside their control which economists call ‘external shocks’ or by their own not-properly assessed business deals, known as imprudent lending or by both – they will burn to ashes, causing similar burns to all those who have been helped by them as well as to those around them.
These occurrences are called banking crises – national if they are confined only to a domestic economy and global if they have repercussions in the whole globe. Whatever the confinement of the
crises, when they hit economies, everyone stands to lose their wealth and they, therefore, reduce the economies concerned too to ashes. The recent banking crisis followed by an economic crisis too in Cyprus is a case in point.
Mechanisms for maintaining bank stability
