First Gordon Brown, now Europe. The euro is already up nicely, we can only hope they’ll take notice at the other side of the pond..
We argued that any plan has to contain at least three steps, liquidity (insufficient by itself), capital (to recapitalize the banks), and lending guarantees to provide the confidence that banks can lend to one another again (for details, see here).
It’s no longer just about liquidity (even Paulson is slowly shifting), it’s about capital and confidence, and Europe gets it right (after Gordon showed the way). Tomorrow will be very interesting. Watch those inter-bank lending rates..
- Paris summit approves inter-bank loan guarantees, recapitalizations and buying up stocks
- By Sam Mamudi & Michael Kitchen, MarketWatch
- Last update: 5:59 p.m. EDT Oct. 12, 2008
- NEW YORK (MarketWatch) — Leaders of the 15 euro-zone countries agreed Sunday to an action plan that will guarantee loans between banks through 2009 and allow governments to buy stock in distressed financial companies.
- The loan guarantees, which a joint statement outlining the plan said could be direct or indirect, would cover new bank senior debt issuance up to five years.
- The plan also includes provisions for euro-zone governments to buy stock in needy companies, to issue qualifying capital to financial institutions through preferred shares and other instruments.
- “So as to allow financial institutions to continue to ensure the proper financing of the euro-zone economy, each member state will make available to financial institutions Tier 1 capital, e.g. by acquiring preferred shares or other instruments, including non-dilutive ones,” the statement said.
- It added that price conditions should take into account the market situation of each involved institution.
- It said while that recapitalization of financial institutions is needed, “we will be watchful regarding the interest of taxpayers and ensure that existing shareholders and management bear the due consequences of the intervention.”
- It also said any emergency recapitalization would be followed by an appropriate restructuring plan. See full text of plan summary.
- The 15 leaders of the euro-zone countries met in Paris to discuss how to deal with the crisis gripping the world’s financial markets.
- Meanwhile, Bloomberg quoted French President Nicolas Sarkozy as saying that France, Germany, Italy and other countries will announce national measures Monday.
- Belgian Finance Minister Didier Reynders said on the sidelines of the conference that the euro-zone countries will decide by Wednesday how much each of them will set aside for the action plan. All 27 members of the European Union will meet Wednesday.
- Also attending the Sunday gathering was U.K. Prime Minister Gordon Brown, who announced earlier in the week a 500 billion-pound ($852 billion) rescue package for British banks.
- The U.K. is reportedly readying an announcement Monday morning of 35 billion pounds in capital injections it is making in four of its leading banks. See full story.
- IMF enthusiastic
- International Monetary Fund Dominique Managing Director Strauss-Kahn said the moves by the euro-zone leaders in Paris were “exactly the type of action” that is needed to reassure very jittery markets.
- “We will see tomorrow” what the market reaction is, but “I am confident,” he said, adding he “couldn’t agree more with the approach.”
- Sarkozy had said before the Paris summit that he expected European countries to present an “ambitious and coordinated plan” that would go beyond what was announced Friday by finance ministers of the Group of Seven.
- The finance ministers gathered in Washington, D.C., for the weekend to discuss a plan to backstop the financial system with injections of cash into banks. The meeting took place as the International Monetary Fund said policymakers are working hard to make sure the global financial system doesn’t fail. See full story. End of Story
Now why can’t they do that over at the other side of the pond. As we argued before, it ain’t rocket science..