The single most impressive response the EU could provide is a combination of disclosure and financial support.
Disclosure would take two forms. First, it would involve each nation's financial regulators disclosing what they know about the current condition of each bank they host. Second, it would involve the creation of a data warehouse that would provide market participants with access for free to each bank's current asset and liability data.
There are two reasons for undertaking this disclosure.
- First, disclosure will provide market participants with the data they need to assess each bank and answer the question of who is solvent and who is insolvent. This in turn answers the questions: who is insolvent and can earn their way back to solvency; who is insolvent, but can access capital from the marketplace; and who, if any bank, is insolvent and requires government assistance or must be closed.
- Second, it involves market participants in both the assessment of the banks and the solution and as a result the process restores confidence.