Bank Crisis in Need of Response, says EU Economists

According to the European Union, there is a need to come up with a much better plan of sharing the expenses of the bank failures so as to temper down the risks of actually having a contagion effect. Two economists by the name of Franklin Allen and Elena Carletti both mentioned that if there is an absence of clearly directed guidelines, then the ensuring result would be that both the global capital market as well as the European ones would be highly susceptible to risks. These results were presented in papers that were outlined for the economic symposium of the Federal Reserve Bank in Kansas City, held in Wyoming.

Very Dire Implications

These two economists know what they are talking about, being professors at Wharton School and the University of Frankfurt, respectively. The previous focus of the Kansas City forum on annual economics was about the fallout that ensured from the financial crisis last year, and according to the keynote speech presented by Federal Chairman Ben Bernanke the financial storm has not shown any signs of receding. Allen and Carletti mentioned the situation to be so that it is too big to actually come up with a ready-made and easily applicable solution. More critics also say that there are indeed very dire implications so much that the authorities will have to get their feet wet and come up with a support system in order to deal with these financial firms – in the same what that they did in the past when they engineered a superb rescue of Bear Stearns investment bank last March.

The Threat of Contagion

Contamination that is the result of the failure of many large banks in America can easily be avoided, but only if there is willingness on the part of central banks as well as the entire government system to pose some intervention measures. In connection with this, there are so many European banks that have also been too active in their home countries so much that it may be a bit difficult to wean such powerhouses from the brink of disaster. One good example of this is the financial group Fortis, which is Belgian and Dutch in combination. This company is said to have amassed assets that are far greater in its size compared to Belgium’s actual gross domestic product. If there is to be a bank failure, then the important overriding issue here would be that how such a burden like it would be equally shared by both countries belonging to the European Union, according to the economists. This of course is only to be addresses after the unspecified guidelines are made a lot clearer and any type of concerted response can be paused in order to evolve and be improved upon.