Everything You Wanted to Know About Bank Nationalization But Were Afraid to Ask
This little primer from the Wall Street Journal on bank nationalization is worth a look, especially if you are trying to figure out whether the government should be moving more quickly to take over some ailing banks.
Here are some of the cons of nationalizing banks, for example. It’s not pretty:
Investors in the nationalized bank would likely be wiped out. And nationalizing even one or two banks could create a chain reaction of falling confidence. If investors worried that other banks were on the government’s takeover list, they would be even more wary of investing in the financial sector.
Nationalization would also be expensive and complicated, taxing a bureaucracy that isn’t set up to operate mega-firms. And while the goal of nationalization may be to return companies to private hands, the temptation to run them for political purposes would be immense.
That’s part of the reason why, despite the growing push for nationalization, the government isn’t rushing in that direction. If the banking system truly is insolvent, however, nationalization may be the end result, regardless of the drawbacks.