In addition, PSBs have to reckon the “legacy” problems, such as the non performing assets that they are saddled with. Some PSBs operate in relatively backward areas with limited discretion for management to pull out from such areas.
Only the credible threat that even systemically important financial institutions may exit the market, and that this can be executed in an orderly fashion, will restore trust in the rules of the game. Unfortunately, the crisis has revealed a significant lack of suitable instruments for effectively dealing with failing financial institutions.