Economies: "More banks will fail" - Paulson

There is no magic bullet for the US financial system's woes, Paulson admitted yesterday. Despite pumping USD700 milliard into the US banking system, in part to buy up over-valued assets that are in default, bank failures will continue.

It's not how hard you fall, but how quickly you get up, is the message from the US Treasury secretary.

Speaking late last night, Paulson said "One thing we must recognise – even with the new Treasury authorities, some financial institutions will fail. The EESA doesn't exist to save every financial institution for its own sake.

Therefore, a second prong in our strategy is designed to mitigate financial market disruption when a bank fails. In addition to insuring deposits up to the new, temporary level of USD250,000, the FDIC has the ability to use its insurance fund and its substantial lines of credit with the Treasury to address systemic financial risk that may be posed by a bank failure.

It is the policy of our federal government to use all resources at its disposal to make our financial system stronger. In light of current conditions, the FDIC, with the full support of the Fed and the Treasury, will use its authority and resources, as appropriate to mitigate systemic risk, by, as appropriate, protecting depositors, protecting unsecured claims, guaranteeing liabilities and adopting other measures to support the banking system."

Oh, yes. Risk. Wasn't that was Basel II was supposed to make all governments and financial institutions manage?

That went well, then. Not.