Editorial Board
Europe’s New Mistake on Failing Banks
Banks in trouble should be resolved, not frozen.
Best avoided.
Photographer: Yorgos Karahalis/Bloomberg via Getty Images
Three years since their banking union began to take shape, European Union regulators are seeking fresh powers to deal with lenders in trouble. Their plan would let them stop withdrawals from a failing bank for a few days while they address the problem, with the aim of preventing a run. But this approach could easily have the opposite effect, spreading panic to the whole financial system. There's a better way.
Instead of freezing bank accounts, EU governments should enable regulators to keep a bank going while they restructure it and search for a new owner. This will require EU governments to commit additional resources for the task.