Bank Nationalization: A Survival Manual (2024)

INTRODUCTION

Prominent voices call for the nationalization of the weakest major U.S. banks, although advocates of that step are still in a distinct minority. In my view, nationalization should only be a last resort measure, as has historically been the case. (The government has frequently taken over smaller banks, but on only rare occasions has it taken over one of the largest banks in the country.) However, such a nationalization could happen in the current crisis, either because we reach the stage of last resorts or because the anger and desperation of the public creates a political consensus for this drastic action.

Nationalization of a major banking group would be extremely complicated, so we need to be prepared in case it occurs. This paper presents a “survival manual,” with suggestions for minimizing the damage from nationalization. Examining the practical issues should also make clear why nationalization is a choice to be avoided, if possible.

There are many definitions of “nationalization.” Here it will refer to a federal takeover of a bank where the government takes full, or nearly full, ownership and chooses to actively play the role of controlling shareholder.

This paper is designed around 15 essential steps to minimize the damage to taxpayers and the country in the event of a nationalization. These are:

Read the full paper »