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Blanket guarantees can ultimately be very costly, particularly when banks view such promises as a licence for excessive risk-taking.
The Irish government is largely to blame for that, because it issued blanket guarantees to bank creditors at the height of the financial crisis in 2008.
Very little was oriented toward supporting the private sector, except for the surviving banks, which were nursed back to 'health' (that is, mostly as highly-leveraged trading shops) with lavish dollops of close-to-free money and blanket guarantees".
At a late stage Mr Geithner rejected the idea of a government-run bad bank (as well as blanket guarantees for noxious assets), put off by the high upfront cost and the problems it would have valuing the debt.
And the Federal Deposit Insurance Corporation will offer an unlimited guarantee on bank deposits in accounts that do not bear interest — typically those of businesses — bringing the United States in line with several European countries, which have adopted such blanket guarantees.
Similar(50)
The blanket guarantee mitigated deleveraging pressure somewhat.
Hong Kong provided a blanket guarantee on all bank deposits.
On April 1st the government lifted its blanket guarantee on bank deposits.
So the implicit, blanket guarantee for state firms and good-sized banks will endure.
Ireland gave a blanket guarantee of its banks' liabilities, including deposits and wholesale financing.
Earlier Sunday, the authorities in Australia and New Zealand announced a blanket guarantee of bank deposits.
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Justyna Jupowicz-Kozak
CEO of Professional Science Editing for Scientists @ prosciediting.com