Governments in Europe are tying themselves in knots to prop up their banks, desperate to blunt the cost and embarrassment of a fresh wave of taxpayer-funded bailouts.
In Italy, for example, the government is encouraging banks to buy public properties that the banks then can use to borrow money. As part of a broader deficit-reduction program in Portugal, the government essentially is borrowing money from bank pension funds and could use some of the funds to help state-owned companies repay bank loans.
Governments in Germany and Spain also are using unorthodox measures to support their ailing banks.
The unusual moves come as euro-zone countries are under growing pressure to reel in soaring borrowing costs by showing investors in government bonds that their budgets are under control. In addition, bank bailouts are politically toxic, especially for governments that have sought to reassure markets about the health of their banking systems.
Some economists say such moves aren't an adequate substitute for a broader rescue package that would include recapitalizing the lenders and helping them issue new debt.
"Most of these backdoor-type schemes seem to be limited in size and don't address the broader problem," said Jacques Cailloux, chief European economist at Royal Bank of Scotland.
In some ways, the recent efforts are emblematic of what critics view as Europe's piecemeal crisis-fighting measures.
In the past few years, individual governments in countries like Ireland, Germany and Spain have recapitalized their banks. The European Central Bank this week is making it easier for banks to borrow emergency funds, by offering three-year loans and accepting a wider range of collateral.
But there has been widespread resistance to adopting sweeping measures aimed at banks' deep underlying problems. Some of the recent European plans resemble the supplemental measures adopted by the U.S. at the height of its financial crisis.
In November 2008, the Federal Reserve launched the Term Asset-Backed Securities Loan Facility to resuscitate the securitization market and lending to consumers and small businesses. That was followed about four months later by the Public-Private Investment Program, designed to help rid banks of their troubled assets.
But those programs were sideshows to the U.S. government's sweeping recapitalization of hundreds of banks, both strong and ailing, which played a key role in restoring confidence in the industry. In Europe, no such program exists.
The Italian government has been among the most innovative at finding ways to help its banks conserve capital or come up with fresh funds.
The country's five top banks were holding a total of €156 billion ($202.8 billion) of Italian government debt as of Sept. 30, and the plunging values of those bonds have raised concerns about the banks' viability. As a result, banks have struggled to borrow money from traditional sources, which are now wary of lending to the banks.
A provision tucked into the Italian government's budget law last month is designed to defuse some of those pressures. It allows the banks to use their government bonds to purchase army barracks, office buildings and other state-owned real estate that the government has been trying to sell.
The government would then lease the properties back from their new owners. And the banks can package the income-producing properties into asset-backed securities, which can be pledged as collateral with the ECB in exchange for loans, analysts say.
Italy's real-estate-for-sovereign-bonds maneuver also gives a boost to the government. Not only can it rid itself of unwanted properties, but the government also will be able to retire the bonds that banks use to purchase the real estate—thereby reducing Italy's heavy debt load.
In Germany, Commerzbank AG is in talks with the finance ministry to transfer part or all of its troubled real-estate finance unit Eurohypo into a government-owned "bad" bank. The bank and government are in talks about ways to structure the deal so it isn't considered a bailout, possibly by protecting the government against some losses or paying the government a nominal fee, according to people familiar with the matter.
That is an important stipulation. Commerzbank executives have repeatedly promised they won't take more taxpayer money, following a 2009 bailout that still has the bank 25%-owned by the government. But Commerzbank needs to come up with €5.3 billion in new capital by next summer in order to meet the demands of European regulators.
In Portugal, the government is planning an intricate financial maneuver that could give the country's banks some relief from the mountains of unpaid loans they hold from Portugal's state-owned companies. The state just closed a plan to transfer banks' future pension responsibilities to the state balance sheet in exchange for €6 billion in assets, which include cash, stocks and bonds. Most of the money will help the government meet deficit targets.
But about €2 billion may be shifted to struggling government-owned companies, such as transport providers. Under the plan, these companies would use the funds to pay off debts to Portugal's banks.
"The move will allow debt repayments to public entities, contributing to a cut in loan-to-deposit ratios of Portuguese banks and helping the financing of the economy," Finance Minister Vitor Gaspar told parliament recently.
In Spain, the government used €5.2 billion in funds from the country's deposit-guarantee plan to clean up nationalized lender Caja de Ahorros del Mediterraneo and broker its sale to Banco Sabadell SA earlier this month.
Instead of raising more money through a Spanish government bailout fund, a central-bank spokesman said that tapping the deposit-insurance plan would leave the country's budget goals this year intact. The deposit-guarantee fund will be refilled early next year, and the government will provide a back-stop in the meantime.
While a potential short-term solution, economists say such moves are a reflection of European governments' piecemeal approach to addressing deeper bank problems, such as low growth, problem assets and sovereign exposures. Governments "haven't been proactive and gotten on top of the situation," said Gerard Lyons, chief economist at Standard Chartered PLC.
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