European banks are in bad shape, and shareholders and bondholders are feeling the heat. With governments and regulators still groping for a solution, various options have bubbled to the surface.
<i>Three main responses have been proposed to Europe’s banking crisis: 1) more stringent regulation and a cap on government debt purchases; 2) setting up bad banks to be financed by taxpayers or monetary expansion; 3) bail-ins requiring shareholders and bondholders to assume heavy losses. With the policy debate now focused on the need for a political solution, it appears that the third response is the least likely and that taxpayers will ultimately be asked to pick up m...
