Dealing with bank failure

............It is doubtful whether higher capital adequacy alone can prevent the recurrence of Black Swan events such as the 2008 global financial crisis. Bank runs have to do with public perceptions regarding safety of deposits, going beyond mere capital provisions. This is not to understate the risk that large PSBs pose. Their proclivity for lending to risky projects stems from a combination of political pressure and the confidence of a government bailout in the event of a crisis. But the way to deal with this is to tighten prudential norms on lending and conduct stricter assessments of non-performing assets (NPAs). The RBI has done well to coerce banks into formulating credit action plans for loans............

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