Excellent summary of how debt-for-equity swaps would work with banks.

Andrew Lilico has a lengthy article in today's CityAM. The idea and the justification are blindingly simple and obvious, of course, but presumably, having won the argument as to why, he has spent the last few years bogged down explaining to people how it would work in practice, so he goes into a good level of detail.

The key to it is this:

... the bank gets new capital – new shares – out of its bondholders, instead of the government injecting taxpayer funds ("recapitalisation" – or, not to mince words, partial nationalisation). So the bank isn’t shut down. The depositors can still withdraw their money. The bank carries on making loans. But it has new owners – the former bondholders – and it has fewer debts (because some of its bonds have gone, converted into equity).

Such a debt-equity conversion can be done very quickly – over a weekend, say, or certainly in no more than a fortnight. If it ends up taking any time, then there is the question of how to maintain service to depositors. That can be done by taking a distressed bank into special administration. When a normal company goes bust, it is taken over by administrators. The administrators in the case of banks would be the Bank of England or the Treasury.

Which is pretty much what I've been saying all along.