bank’s owners stand first in line to absorb losses. The holders of subordinated debt are second.) Countries could, but have not explicitly written down banks’ debts. Instead, some have frozen deposits temporarily, reduced the rates paid on deposits, relied on inflation to cut real values, converted private sector claims on banks into long-term bonds or equity, or imposed a special levy on social banks. 72 Imposing Special Levies Before it institutes a full guarantee, a deposit insurer may impose special charges on sound banks. These special charges exceed the
project insurance approach under which cover would be obtained by the owner himself instead of being issued by the several individual project contractors, subcontractors, consultants, and suppliers. Clearly, the owner stands to gain, both financially and otherwise, in a situation where he has to deal with a single insurer over one policy. One may safely assume that this would involve simpler and less costly claim settlements. Is comprehensive project insurance feasible? Could it also encompass liability for faulty design and make the professional liability policy
scope of this paper. It is becoming increasingly recognized that bank restructuring without corporate restructuring may be self-defeating, because if banks’ problems stem from problems with their customers, then addressing customers’ problems is critical to remedying the underlying situation facing the banks. 41 There are obvious moral hazard effects if the original owners stand to benefit from these guarantees. There is, therefore, a strong case for making the granting of guarantees conditional upon fulfilling conditions similar to those discussed above for
. 36 Corporate restructuring is beyond the scope of this paper It is becoming increasingly recognized that bank restructuring without corporate restructuring may be self-defeating, because if banks’ problems are derived from problems with their customers, addressing the problems of the customers will be critical to remedying the underlying situation facing the banks. 37 There are obvious moral hazard effects here if the original owners stand to benefit from these guarantees. Hence there is a strong case chat the granting of such guarantees should be