The standard advice here is to return the private financial sector to health through recapitalisation.
For the avoidance of doubt, the chancellor has already vetoed a public-sector recapitalisation of the banks.
Banks are waiting for the arrival of the new government to finalise a planned recapitalisation.
But by countenancing jointly financed bank recapitalisation, Mrs Merkel has accepted a broader notion of risk-sharing.
The burden of recapitalisation would fall disproportionately on a few, very large and relatively thinly-capitalised banks.
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In August, the group was tantalisingly close to a rescue deal via a recapitalisation.
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Thereafter, direct bank recapitalisation should only take place once the system has shown itself to be effective.
And to stop banking contagion spreading to the likes of Italy and Spain, you need a banking recapitalisation programme.
The government has bought a 58% stake in RBS as part of its recapitalisation plan for the banking sector.
If direct bank recapitalisation is still needed, the Treasury can do that too.
The first is financial: the euro zone needs a region-wide system of bank supervision, recapitalisation, deposit insurance and regulation.
The bank recapitalisation was intended to help do that, which is why we called for it and supported it.
If things do proceed in this manner, the odd effect of recapitalisation will be to increase leverage in the system.
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Only uninsured deposits in BoC will remain frozen until recapitalisation has been effected, and may subsequently be subject to appropriate conditions.
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Assuming it passes that test, the ESM cannot be used for direct bank recapitalisation until a European supervisor is put in charge.
Recapitalisation will also interfere with the long-overdue shrinkage of the financial system.
Direct recapitalisation by rescue funds would be a big step towards risk-sharing.
The case of RBS, a British bank that was nationalised during the financial crisis, highlights some of the difficulties that recapitalisation will entail.
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The facility could also be used to prop up Greek banks, which would require recapitalisation since they hold large amounts of Greek government debt.
Currently, Sir Philip is chairman of UK Financial Investments, the company established to manage the government's shareholding in banks subscribing to its recapitalisation fund.
That figure looks relatively manageable when set against Ireland's recapitalisation of its banks, which has so far amounted to almost half of its GDP.
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But now it is clear that the bank recapitalisation, while it may have saved the banks from collapse, has failed to save the wider economy.
There has to be at least the prospect in the near future of a programme of recapitalisation, of bringing these banks within a safe haven again.
The reason why Europe's bank-recapitalisation schemes have been approved by the European Commission is that banks play a critical role in the economy: increased lending justifies intervention.
Regrettably, only two of the 12 banks offered money are private, and the owners of many others are reluctant to pay their share of the recapitalisation costs.
Schauble has pushed back on European lenders having a single regulator knowing full well that it would be a condition for access to allow banks ESM recapitalisation.
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The recapitalisation plan stopped the banks from crashing - but the impact of the credit crunch is still being felt by businesses and people wanting to buy homes.
All of which implies that the bailout fund, the European Financial Stability Facility, would be required for the recapitalisation of Greek and Portuguese banks, and also - probably - Italian banks.
At a minimum there must be a euro-zone-wide system of deposit insurance and oversight, with collective resources for the recapitalisation of endangered institutions and regional rules for the resolution of truly failed banks.
And if ministers want to do what investors and creditors apparently want them to do, which is to force a serious recapitalisation of big French banks, the minimum capital threshold would have to be set high, at 8%.
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