As discussed in his Wall Street Journal Heard on the Street column, Richard Barley notes that Slovenia is fast approaching the time where the pattern that leads to a taxpayer or depositor funded bank bailout becomes inescapable.
Regular readers know that Slovenia could still escape this fate by taking a more proactive approach and requiring its banks to provide ultra transparency.
By requiring its banks to disclose their current global asset, liability and off-balance sheet exposure details, Slovenia accomplishes two objectives.
First, it postpones for several months the time when a bailout might become inescapable.
Second, it and the market discover just how big the holes are in the bank balance sheets and whether the banks are capable of generating interest income in excess of their interest expense and pre-banker bonus cost of doing business.
If banks can generate income in excess of their cost of doing business, then no bailout is necessary as the banks can recapitalize themselves out of retention of future earnings.
Those banks that cannot generate an excess need to be closed.
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