Summary
All these years the IMF and World Bank were preaching the virtues of privateization of banks to the developing countries. Suddenly the financial crisis and the deep economic recession have changed all that in the very developed and advanced countries as the major US banks like Bank of America, City groups etc have been on the verge of bankruptcy and if the US government allowed those banks to die the way they allowed Lehman groups to die , it would have desroyed the entire banking and monetary system and the cofidence of people in banks . Rightly, the US government decided to step in to support those banks by injecting the capital in the form of prefereed shares. In turn the government may impose some conditions on those banks in public interest like more rigorous risk management systems and procedures, and even some restrictions on executive pays and traders bonuses etc.
Analysis
This news will have great impact on financial industry and banks in particular.The financial derivatives used by banks sometimes transfer risk but the risk is still there and banks acted in an irresponsible way as if the risks are eliminated by derivatives, and the prudence of risk management lessons are forgotten in eagerness to grab more trading profits and the private banks are much prune to it. Finally, when the state is forced to rescue the financial industry with public money some social control and even nationalization are bound to come . The developing countries should take a good lesson and should not go for blind privatezation of banks and learn to ignore the IMF and World bank propanda.
