The need is to keep the process of financial intermediation flowing: it is the life-blood of the real business sector. The problems are not, in fact, examples of some new “crisis of the 21st century”: they are, at heart, the old problems of bank collapses and the remedy is, in principle, well established.
Restoring confidence is the critical factor and for this (as Bagehot observed) central banks should “lend freely, but at a penalty rate”. Insolvent institutions must be separated from the solvent, dealt with, and the remaining institutions supported. None of this is easy. Intractable problems of moral hazard exist, but this should not be allowed to paralyse action.