1. Bank balance sheets ASSETSLIABILITIES MORTGAGES DEPOSITS CREDIT TO BUSINESS RESERVES SHAREHOLDER

2. Bankrupt bank ASSETSLIABILITIES MORTGAGES DEPOSITS CREDIT TO BUSINESS RESERVES

3. Liquidity problems LIABILITIES: -- checking and savings accounts that can be withdrawn quickly (on short notice) ASSETS -- long run; bank loans and business credits will be returned slowly over times

4. ASSETSLIABILITIES MORTGAGES DEPOSITSCREDIT TO BUSINESS RESERVES SHAREHOLDER Bank with liquidity problems exceptional withdrawals of deposits

5. Original Paulson Plan (USA) ASSETSLIABILITIES MORTGAGES DEPOSITS CREDIT TO BUSINESS RESERVES SHAREHOLDER buy bad mortgages

6. Original Paulson Plan (USA) ASSETSLIABILITIES MORTGAGES DEPOSITS CREDIT TO BUSINESS RESERVES SHAREHOLDER

7. Spanish Plan ASSETSLIABILITIES MORTGAGES DEPOSITS CREDIT TO BUSINESS RESERVES SHAREHOLDER buy good mortgages

8. Spanish Plan ASSETSLIABILITIES MORTGAGES DEPOSITS CREDIT TO BUSINESS RESERVES SHAREHOLDER

9. British Plan ASSETSLIABILITIES MORTGAGES DEPOSITS CREDIT TO BUSINESS RESERVES SHAREHOLDER GOVERNMENT BECOMES A SHAREHOLDER

10. British Plan ASSETSLIABILITIES MORTGAGES DEPOSITS CREDIT TO BUSINESS RESERVES SHAREHOLDER GOVERNMENT BECOMES A SHAREHOLDER

11. ASSETSLIABILITIES MORTGAGES DEPOSITSCREDIT TO BUSINESS RESERVES SHAREHOLDER All plans: government provides “liquidity” exceptional withdrawals of deposits

12. Government ownwership of banks? Will it improve the situation? Yes, if the government is better at avoiding high risks. That is, if government is better risk manager. GERMANY INTERESTING CASE: -- big private banks -- big banks with substantial public ownwership (federal, state, municipal)

13. German banks with problems Deutsche Bank Hypo Real Estate West LB IKB Deutsche Industriebank Bayern LB HSH Nordbank Sachsen LB

14. Fannie Mae and Freddie MAc The 2 big US mortgage intermediaries that went bankrupt and were “nationalized” a few weeks ago These were “government sponsored enterprises” -- they were perceived as more secure because of implicit government backing -- they were under political pressure: several indication of political pressures to buy more mortgages to “high-risk” households to make housing more affordable for low income families