Sunday, October 26, 2008

Bank Guarantees

At VoxEU, Viral Acharya and Raghu Sundaram, finance professors at NYU, compare the US and UK bank guarantees. The two plans are quite different, and the authors ask what will happen if the crisis deepens. The answer seems to be more panic and failures in the UK, and taxpayer-subsidized relative calm in the US. In the end, taxpayers in both countries will bear the cost, however.

In France, Sarkozy has offered blanket guarantees of everything related to banking: deposits, loans, what-have-you, but details, so far as I am aware, have been thin. So it would seem on the surface that France more closely resembles the US plan. My sense--possibly erroneous--is that the government of France has been profligate with promises and short on particulars. Now that various bailout plans are being analyzed in detail, it would be nice to know more about what the French have actually proposed. If anyone knows where to find this information, please let me know. As usual, the French media (at least the media I have seen) have not been much help.

3 comments:

Leo said...

Art,
the bank guarantee plan was announced on October 14, but to be in force "after three weeks".
I guess we should have the details by next Friday.

Unknown said...

Leo,
In other words, policymaking as usual under Sarkozy (and, more generally, in France): a vague presidential announcement with much fanfare, secret preparations in the ministry, consultations held in private, if at all, and, ultimately, a plan sprung without opportunity for public debate or criticism, which will be confined to a brief period in the Assembly punctuated by soundbites in the corridors. Not that US policymaking in the crisis has been a model for anyone, but there was at least lively discussion of alternatives prior to major decisions. In France, people seem to be waiting with arms folded across their chests for their government to act.

Leo said...

Art,
as often in France, the focus was on the institutional aspect of things rather than on the plumbing of often arcane matters of which the average député or even (sigh) the average journalist has strictly no understanding.
So Parliament voted to create a new financial institution to guarantee credits to the tune of 320 Billion which would be managed by the Banque de France, would be owned 66% by the banks and 34% by the state. That institution would borrow funds with government guarantee.

It was voted by the majority, the left abstained, not because they wanted to know more about the mode of operation but because it did not address the coming recession.

Business as usual: the Enarques in the Ministry and the banks will discuss the implementation behind close doors and fot he rest of us peons: "Circulez, ya rien à voir". And nobody objects.

However, one positive difference with the US is that the government will make sure that banks which get help will have to show they increase their credit supply.