Legislatures worked late into the night this week. First it was Ireland, where it took till 3 a.m. to work out the final details of a liquidation plan for what is left of the bankrupt Anglo Irish Bank, a giant bank whose successive bailouts effectively broke the government of Ireland — and then the bank went under anyway. The Irish government rushed to finalize the plans after a Reuters story reported that the liquidation was in the works. As it turned out, the bank liquidation was necessary for the government to meet the terms of an extension on its European bailout. The European Central Bank might adjust some of the timing or other details of the liquidation, but there is no reason for anyone to imagine “Anglo” as a going concern from here forward.
Then it was an all-nighter to put together the contents of the EU’s first austerity budget. This effectively makes austerity a consensus across Europe.
RBS will pay $615 million to U.K. and U.S. authorities for its role in falsifying Libor. After that announcement, there was a consensus in London that the giant bank is not far away from full nationalization or receivership. If nationalization goes forward, there will be difficult questions about the future of RBS Citizens Bank, a U.S. subsidiary since the time of the banking crisis. The U.K. taxpayers will not want to be the sole owners of a major U.S. bank, but it is hard to imagine who they might sell it to, and spinning it off might not be an option either, as it is not certain that Citizens is strong enough at this point to stand on its own.
Similar questions might soon come up for Santander, which seemed the picture of financial health when it snapped up several banks across the Americas five years ago. Its latest report showed it staggering from the depression in Spain and just a few steps away from life support. Meanwhile, UBS turned in a particularly dismal report that shows that bigger changes will be needed there.
There was more direct talk about breaking up the banks this week. The U.K. government is working on a law that would allow regulators to seize and break up a bank as a penalty for illegal mingling of securities trading and traditional deposit-based banking. Elsewhere, there was talk about the possibility of a loose global standard on requirements to keep deposits safe from the inherent risks of securities trading, by preventing any one business from being too deeply involved in both. Such a rule would force the breakup of virtually all of the world’s giant banks, without giving them the option of fleeing across national borders.
Update: The NCUA placed NCP Community Development Federal Credit Union into conservatorship. The Norfolk-based credit union has 700 members and $2 million in assets. It will continue to operate under NCUA management.
