The Governmental Intervention in the Financial Sector of Developed Countries

Published: 2021-06-17 08:30:31
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In US, western countries or some developed countries in asia , the govs nationalize their banks by buying their share then sell them to pirate coporations when it get through crisis. Moreover, when govs are main shairholders they can order them to reform assets and funds. A typical example, the British government bought shares of Royal Bank of Scotland and Bank Lloyds in 2008, making the percentage of shares owned by the Government of the two banks relatively are 67% and 43%
Besides, govs call domestic and abroad investors to invest in their bank by giving them bias. It call cofinancing which mean when a invester finace a bank gov promise to invest as much as they do. This is not only the make-believe for investors about the ability of banks to revive, but also reduce the amount of capital that government needs to improve the financial situation of the bank.Govs increase limitatiion of foreign invests for long period to encourage foreign investors . In 1998, the Brazilian government raised the foreign ownership limit from 7% (by applied since 1994) up to 14% to increase available funds for the domestic commercial banks
Before carrying out the activities of merger, consolidation and acquisition, central banks countries often conduct screening out the weak banks by providing a framework for the classification standards of operation. Accordingly, the bank does not meet the safety standards are forced to terminate operations, for banks to better financial position it is acquisition. With banks which are difficulty but have abilities to recover will likely be asked to merge together. Thus, the number of banks after restructuring reduced but provided capital, asset quality and competitiveness and profitability get improved.
For example : The merger of two US banks Bank of America and Merrill Lynch in 2008, helping Bank of America become the number one domestic bank in the United States following the criterion of deposits and market capitalization
(why we need acquisition, consolidation and merger : every banks have cross-ownership to eachother so when one collapse it lead to another)
However, in practice, the banks do not often take the initiative to merge even if the situation has become extremely difficult due to the coordination of interests between the parties is very complicated.Therefore, central banks must act as intermediary agencies, a bridge for restructuring negotiations between the parties concerned
When bad loans rose continuously a systematic way, governments are strive to reduce this rate down in fastest way.
Buying bad debt not only help to increase professionalism in the ability to handle debt, but also help banks stabilize thier works and by the acquisition of bad debt will make it able to recover lending capacity of banks
Example: . Korea established the Company Management Assets (KAMCO) to purchase bad loans from credits institutions
The Thai government has set up Debt management companies and assets (AMC)
In late 90s
To get investors confident, the most important thing banks need to do is proving their transparency
Shareholders or depositors have the right to be provided with full information on the precise operating activities or financial situation of the bank, including bad loans, the transaction sheet, derivative securities, or even special information as losses due to lawsuits
Government has to consider strengthening depositor protections by increasing deposit insurance limits- in Vietnam now it is 50 million dong.
In some countries, Central banks will guarantee for loans on the interbank market a openly and (guarantee charges are usually very high) to support liquidity for struggling banks on cash flows. (In a short term to not effect national budget)
During the restructuring process, there are many new issues arising from the practice, even as the problems have never happened in history that existing laws operating not cover all
Gov need review of documents law, construction plans of the Government and Bank Central to intervene in various situations, to ensure that they do not violating the laws were enacted before.
This is very important because it show that acts of interference by the Government and the Bank are objective, fair and transparent for only the benefit of the economy
To be able to provide invaluable support banks to raise their performance in the new stage of development Central Bank need to construct legal documents in the exercise of their powers and advised the government to improve the legal provisions relevant
In Japan, the end of August 1998, to create a solid legal framework for progress restructuring, the government passed the Law on budget system restore of Japan to resovle the huge debts
To sum up, all of these solution depend on Central Bank. Central Bank have to: classify commercial banks, devide them into groups as Good, Normal, and Weak then get right policy to restructure to each group. Promote banking restructure process by providing a clear law principle and helping banks in refunding, mergering each other, connect to foreign investors, guarantee for their loans, call investment buy bias, raising investors confident.

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