Bank bailout in US offers roadmap for crisis in Europe
Analysis: The bank bailout of 2008-2009 could be a guide for the euro zone – but will it be a good guide? Remember that the US's bank bailout angered many Americans.
As the European debt crisis edges closer to a break up of the euro zone, U.S. financial regulators may be reaching for emergency manuals that have gathered little dust since the last crisis.Skip to next paragraph
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In doing so, they will be mindful of how bitter the American public remains about the bailouts of Wall Street in 2008-09.
The Federal Reserve and the Obama administration would likely be able to draw on many of the same tools used at the height of the U.S. crisis, should Europe's sovereign debt woes spiral into a severe credit freeze or worse.
They will have the benefit of the lessons of their recent experience and improved coordination among regulators.
But it is highly unlikely Washington would resort to a new bailout fund like the $700 billion Troubled Asset Relief Program (TARP) that was used to shore up U.S. banks, insurers and automakers three years ago.
Many Americans across the political spectrum remain angry at what they perceive as protection given to Wall Street executives while ordinary people lost their jobs, homes and savings. The popular backlash helped create the Tea Party political movement and is now fueling the ``Occupy Wall Street'' protests across the country.
``We are more restricted now. The public concluded that the TARP was a terrible program, even though it was a good program,'' said Douglas Elliott, a former investment banker who researches financial policy at the Brookings Institution, a Washington think-tank.
``Because the public hated TARP so much, it would be very difficult to put capital into banks again, even if that were the smart thing to do,'' he added.
The likelihood of a new full-blown banking crisis in the United States seems less likely given recent actions to strengthen the sector and tougher regulations, but U.S. officials pressed European leaders to erect a strong quarantine around euro zone banks.
U.S. regulators have said American banks have minimal direct exposure to European sovereign debt, although the collapse of Wall Street brokerage MF Global serves as a reminder that crises always expose hidden problems.
If the euro zone's debt woes spur a banking crisis and a deep recession in Europe, the United States would feel some of the pain.
FED TO THE RESCUE?
While a new U.S. bank bailout fund may be too hard to swallow politically, the Federal Reserve could almost certainly widen its safety net.