I found a neat article from March 19, 2008 in the UK publication MoneyWeek about using Credit Default Swap rates to spot banks on the verge of failure. Author James Ferguson deserves admiration for his foresight. In the nine months after this article was published, HBOS, Kaputhing, Anglo-Irish, and Landsbanki indeed went belly-up as Ferguson predicted. Royal Bank of Scotland (RBS) is circling the drain, and if it survives it will only be with intervention to the point of nationalization.
That has become the question – with the next jolt, it is inevitable that more banks will fail. Will they be allowed to or will we see a wave of de-privatizations? My sense is that European countries with a banking industry dominated by a single entity (i.e., ING Groep in Holland) will prop up their de facto national banks to the end. Countries like Britain and the US have too many passengers and not enough lifeboats.