The present crisis is seeing huge support in the form of guarantees and loans by governments and by the European Central Bank (ECB).
The ECB is pumping billions of Euros to support the banking system.
In return for this support the EBC and governments should receive equity stakes in the supported banks, which can then be sold at a profit when the crisis is over.
The rationale is quite simple this is exactly what banks do!
When taxpayers are on the hook for losses they should also have their rightful share of future profits from this support.
An interesting matter that flows from this proposal is that the ECB is actually supporting American banks that operate in Europe because we all know that all big banks are connected through the markets. This was the great lesson that we learnt from the Lehman and US mortgage banking crisis.
Thus all those big international banks operating in the European markets are subject to the above proposal, and in turn European banks operating in the USA could also be subject to US government ownership if they benefit from similar support in the US.
If any big bank refuses such shareholder dilution then their operating licences could be revoked. The choice is quite simple – why should losses be socialised and profits privatised.
The idea is not at all radical this is exactly what has been happening before in Europe and in the USA. Banque Indosuez and Banque Paribas were nationalised in the early 1980’s, to be privatised when the worse was over at a profit for the state. Many other European banks have been subjected to the same process. However, we have never seen anything like the new intervention of governments and the ECB to support the banks.
These times call for a far more rigorous quid pro quo.