Extend and pretend
Banks can play that game no more. But recapitalisation is not the reform that is needed to prevent a recurrence
The problem of hidden bad assets is pervasive across the entire banking system. (Representational)
The problem of rising non-performing assets of banks has been simmering beneath the surface for many years. Until now, it was possible to sweep bad news under the carpet. But the pressure arising from bad loans going through the bankruptcy mechanism has made it difficult to continue the game of extend-and-pretend. Recapitalisation of banks is, however, not a reform. It uses taxpayer money to cover up the failure of institutions. To prevent a recurrence of such failure, it is important to reform not just governance, but also regulatory oversight.
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