Roubini warns of 'sovereign' bank failure

[seemslikeadream]

http://business.theage.com.au/business/world-business/roubini-warns-of-sovereign-bank-failure-20090220-8cs4.html



Nouriel Roubini, the New York University professor who predicted the global credit crisis, said a government-backed bank ''may crack'' as officials try to bail out their financial systems.

''The process of socializing the private losses from this crisis has already moved many of the liabilities of the private sector onto the books of the sovereign,'' Roubini wrote on his Web site today. ''At some point a sovereign bank may crack, in which case the ability of the governments to credibly commit to act as a backstop for the financial system -- including deposit guarantees -- could come unglued.''

Roubini didn't identify any sovereign bank that might run into difficulty.

He also said he sees a 30% chance of an ''L-shaped near-depression'' without ''appropriate and aggressive policy action'' by the US and other major economies to prevent a sovereign bank's failure.

The latest data indicate fourth-quarter gross domestic product in key economies including the US, the euro zone and Japan may be worse than initially reported.