UBS chairman Axel Weber says 'Euro zone yet to tackle root problems'

Reuters reports that UBS chairman and former Bundesbank head Axel Weber identifies the key problem of adopting the Japanese model for handling a bank solvency led financial crisis.  He observed that the Euro zone has failed to address the problems like bad debt in the financial system.

Former Bundesbank head Axel Weber warned on Thursday that policymakers had yet to truly tackle root problems in the euro zone, including Spain's troubled banking system.... 

Recent central bank steps to stabilise the region, such as the European Central Bank (ECB) loaning cheap money to banks, were only short-term fixes, he said. 

"These actions have only bought time," said Weber, formerly an ECB member. "We seem to have lost a year in terms of dealing with the underlying problems."...

Weber said policymakers should look at other tried and tested measures such as bond guarantees and ringfencing certain assets on banks' balance sheets, as interventions thus far may only help in the short term. 

"It could even be counter-productive in the long term as it incentivises many of the banks not to address the problems," he said....

The Japanese model is all about not addressing the problems.

It is the Swedish model with its requirement that banks recognize the losses on their bad debts today that addresses the problems.

Weber, who will have to steer UBS through its capital raising efforts as well as handle shareholder pressure over limp returns and high pay, said banks faced big challenges in raising capital in the market and that the only real option was to sell off assets and rein in lending.

Actually, there is a third option.  Provide ultra transparency so that market participants can independently assess the risk of UBS.  Assuming that UBS is low risk and provides an appropriate level of risk adjusted return, there should be substantial interest by shareholders in investing.