One of the most famous stories from the US credit crisis is about how Hank Paulson and Ben Bernanke made America’s healthy financial firms take TARP loans at the same time that the big weak banks did. The nation was in a panic as the credit crisis deepened. The US government did not think it possible to show investors and depositors that one group of banks was too weak to survive without aid while others were viable. It would have cause a run on the weak banks which could have taken them under.
The 2008 actions of Paulson and Bernanke are now being mirrored in Europe and the ECB urges all major banks to take inexpensive loans to bolster than balance sheets. Large financial firms, particularly in Germany, want to show that they are not in any financial trouble, the way that some in places like France are.
While Germans say they will not take ECB funds, the problem of reveling which banks are in real trouble has become acute
According to The Wall Street Journal
critics say that the ECB’s unprecedented loans are making fragile banks in Southern Europe and Ireland even more dependent on the central bank for funding, exposing it to losses in the event of a government default or banking collapse in the euro zone. A number of European banks have said in recent days that they didn’t take the ECB up on its loans in December, fearful of being tagged as bailout recipients.
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