This raises a series of questions when it comes to estimating how much capital the banks are going to have to raise.
- Are sovereign debts going to be written down to today's market price or the market price in a month after the market has had a chance to absorb that no bailouts are coming?
- Are banks going to be required to recognize all the losses in their banking book?
- Are banks going to be required to recognize all the losses in their investment/trading book?
In short, how much of their bad debt are banks going to recognize as part of the recapitalization process?
Finally, are the banks going to be required to provide current asset and liability-level data so that market participants will can verify that the banks have really been cleaned up? If they do not do this, the experience of the Spanish and Irish banks shows that they will have a very difficult time tapping the private capital markets for equity.
Finally, is Europe embarking on the Irish bank clean up experience? Regular readers will recall that Ireland's experience was that it had to keep returning with new programs to clean up the bad assets on its banks books.
Finally, is Europe embarking on the Irish bank clean up experience? Regular readers will recall that Ireland's experience was that it had to keep returning with new programs to clean up the bad assets on its banks books.
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