Banks at risk of bankruptcy with taxpayer money

Banks at risk of bankruptcy with taxpayer money

Banks at risk of bankruptcy with taxpayer money

The socialization of losses can be achieved by injecting money into banks to deal with their liquidity or cash problems through so-called negative interest rates. You can also buy the toxic assets, the debts that the bank knows will never be returned. Furthermore, the government can rescue banks at risk of bankruptcy with taxpayer money, buying them and making the State responsible for the payment of their debts. In practice, various measures are usually combined depending on the situation of each bank, just as the European Central Bank (ECB) did during the banking crisis of 2008: using its monetary policies, the banco de venezuela en linea decided to lower interest rates, while the governments of the European Union rescued 61 banks to avoid bankruptcy.

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Model based on maximizing your profitability

With or without Basel accords, the role of traditional banking is central to the development of an economy. Its mission is not only to put the lender in contact with the debtor but also to be the guarantor of the viability of a system based on trust. This role has made it one of the most regulated and intervened economic agents in the economy, the price to be paid by whoever exercises the sole intermediary company between the central bank and the rest of the companies, individuals, institutions, and markets that they make up the financial system. These advantages are an incentive for your business model to be based on maximizing your profitability, which means increasing your risks. Thanks to the socialization of losses, This assumes that banking has become a privileged business model in which there is no freedom of entry and which must always do well because of the enormous responsibility in the development of prosperity, economic stability and the creation of wealth. As designed, the system cannot fall, no matter what happens.

Long-term debts

If the banks assume the risks in an intelligent way, the economy grows and they obtain benefits that they enjoy like any other private company. However, what happens if the loans that the bank has granted are not repaid? What can be done when a bank goes into crisis and there is a risk of contagion in the banking system? There are different options depending on the threat: it may be a default, the bank’s www.banco banesco inability to meet its short-term debts, but there may also be a real risk of bankruptcy, the inability to pay off long-term debts. Often central banks and governments must articulate a quick response in a very short period of time with incomplete or erroneous information. In this situation, they have two options. The first is to drop the bank, assuming the economic and social cost that would entail the loss of the savings of thousands or millions of clients and other investments that the bank had, and even risking the spread of the crisis. The second is to socialize the bank’s losses; that is, use public money to rescue him and improve his situation. Put extra efforts and see the following link

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