Minister of Finance Katainen: Nationalisation is no bogeyman in bank crises

Jyrki Katainen

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The countries facing bank crises have to keep a cool head and to resort to nationalisation if it is ”the least evil among bad alternatives”, recommends Minister of Finance Jyrki Katainen (National Coalition Party).
      Katainen expressed his views in Washington, where he was to meet the Chairman of the Board of Governors of the United States Federal Reserve Ben Bernanke on Tuesday.
      Katainen planned to report to Bernanke on some lessons learned by Finland during the domestic banking crisis of the 1990s, when for instance the Bank of Finland took over control of the collapsed Skopbank and a state-funded Government Guarantee Fund (Valtion vakuusrahasto) was also established to support the savings banks.
     
In an interview with Helsingin Sanomat, Katainen said that the most important lesson in Finland was that the problems are to be tackled determinedly, setting aside the ideological ideas.
      Moreover, it is important to admit the problems openly: in the current crisis all large financial institutions should undergo stress tests to determine how well the banks could hold up if the recession got worse.
      Katainen took up a cautiously confident attitude towards the plan presented by Timothy Geithner, the United States Secretary of the Treasury, a couple of weeks ago. According to the scheme, attempts are to be made to transfer the banks’ toxic assets to a fund that is to be financed partly with private capital, with the rest coming from the government.
      ”It looks like a credible package, but if it fails, we have lost many months - maybe the entire following year”, Katainen warned.
     
The Minister was surprised at the estimates made in the USA, according to which the world’s largest economy would start to recover from its current malaise already at the end of this year or by the beginning of next year.
      Katainen’s bewilderment was attributable to the fact that the banking sector’s problems have not been resolved as yet, and the world is just waiting to see whether or not the plan to rescue the financial institutions suggested by Barack Obama’s administration begins to bite.
      The Obama administration has predicted an economic growth of more than three per cent for next year.
      ”Nobody can say what would be the reason for the economy to begin to turn upward”, Katainen argued.
     
In Katainen’s view, the strong revival measures of the real economy are naturally the factors underlying the predicted growth.
      Nevertheless, he thinks that they could remain temporary unless the illness itself is healed - in other words if the banks’ crisis of confidence does not end. Katainen characterised the revival measures as mere ”alleviation of symptoms”.
     
In the United States, some economists have called for full-fledged nationalisation of stricken banks.
      However, there is a strong ideological resistance against transferring financial institutions into the hands of the government. So far, Obama’s administration has assured people that nationalisation would not be a smart move.
      On his trip, Katainen will also meet Robert Zoellick, the President of the World Bank, and Dominique Strauss-Kahn, the Managing Director of the International Monetary Fund (IMF).
      Katainen will leave the United States on Thursday.


Links:
  Finnish Banking Crisis of the 1990s (Wikipedia)
  World Bank
  International Monetary Fund
  Board of Governors of the Federal Reserve System

Helsingin Sanomat