Rolf Englund IntCom internetional
Banks need more capital
What lies behind the credit squeeze is the combination of reduced trust in and decimated capital at financial institutions.
People and institutions don't want to deal with anyone unless they have substantial capital to back up their promises,
When Sweden experienced a financial crisis in the early 1990s, the government stepped in and provided the banks with additional capital equal to 4 percent of the country's GDP—the equivalent of about $600 billion for the United States today—in return for a partial ownership.
It seems doubtful, however, that this will be enough to turn things around, for at least three reasons.
“Why didn’t we see this coming?”
In a guest article, Alan Greenspan says banks will need much thicker capital cushions than they had before the bust
How much extra capital, both private and sovereign, will investors require of banks and other intermediaries to conclude that they are not at significant risk in holding financial institutions’ deposits or debt, a precondition to solving the crisis?
Government credit has in effect acted as counterparty to a large segment of the financial intermediary system. But for reasons that go beyond the scope of this note, I strongly believe that the use of government credit must be temporary. What, then, will be the source of the new private capital that allows sovereign lending to be withdrawn? Eventually, the most credible source is a partial restoration of the $30 trillion of global stockmarket value wiped out this year, which would enable banks to raise the needed equity. Markets are being suppressed by a degree of fear not experienced since the early 20th century (1907 and 1932 come to mind). Human nature being what it is, we can count on a market reversal, hopefully, within six months to a year.
En bank får låna ut 10–20 gånger sitt egna kapital.