Uruguayan officials hurriedly devised a more flexible alternative, which distinguishes between sound banks (which will operate normally) and unsound ones (some of whose fixed-term deposits are frozen until rescue measures are taken).
On the other hand, to prevent people from ever again experiencing the loss of their life savings as banks went out of business, banks are regulated to prevent "unsafe and unsound" business practices so as to protect depositors and the federal deposit insurance fund.
Western banks should be encouraged to replace this kind of commercially unsound lending to sovereign borrowers with tightly structured, specific purpose credits in support of trade transactions and projects.
The banks are so keen to avoid write-offs that they often approve unsound corporate reorganisation plans and unrealistic estimates of profits, according to Yang Sung Tae, a Seoul bankruptcy-court judge.