Billionaire investor George Soros said he would move good assets out of bad banks in a form of nationalization in an attempt to fix the financial system.
"I would keep existing capital with bad assets and move good assets out and recapitalize," giving existing shareholders the right to invest, Mr Soros reporters at the World Economic Forum in Davos today.
"It would cleanse the banking system . . . It is a radical step but I don't think that the political will is there."
"When you create a bad bank you have the government effectively bailing out the banks by relieving them of their bad assets. That runs into all kinds of problems - at what price do you take it over?"
He said if the price paid was too high "you are effectively subsidising the banks at the expense of the taxpayers . . .If the price is realistic, then the banks are actually insolvent. This good bank-bad bank thing runs into problems on pricing."
"[But] this is doable. Certainly in the US you have banking examiners who are very familiar with the assets of the banks. They have to be given clear guidelines and those guidelines of course cannot be absolutely exact."
Mr Soros also said while Troubled Asset Relief Program funds from the US government will help address the financial crisis,
it won't be enough to turn the situation around as banks face a shortfall of as much as $1.5 trillion.
Mr Soros, who made $1 billion selling the pound in 1992, said his long-held pessimism in the outlook in the world economy had allowed him to make money during the crisis.
"I was able to protect my capital and get a rate of return," he said. "In the current environment, to be in positive territory is itself an accomplishment." Mr Soros said.
He also said he had anticipated the recent fall in the value of sterling. "I did actually foresee the fall in sterling and that was one of the positions we carried," he said. Below $1.40 "it seemed to me the risk-reward was no longer clear."
The British government's efforts to protect the banking system from the turmoil last week led to a drop in the pound to the lowest level against the dollar since 1985.
"We did have short position in sterling, but it doesn't mean I'm bearish on sterling today or bullish," Mr Soros said.
Mr Soros said the widening gap between the interest rates Spain, Italy, Greece and Portugal must pay investors to borrow for 10 years and the rate charged to Germany reflects "structural weaknesses in the construction of the euro" and the lack of a common fiscal authority.
Governments will eventually have to help each other out because individually they lack the "borrowing power" to protect their banking systems, he said.
Political and business leaders from across the globe have been gathering for the annual World Economic Forum which started this morning in the Swiss ski resort of Davos.
News Corporation chief executive Rupert Murdoch warned delegates: "Don't let's lose sight of what creates wealth. It is open markets, it is capitalism."
The five-day event has more than 40 heads-of-state, including Taoiseach Brian Cowen, scheduled to attend to discuss a range of economic topics but with plans for a global recovery high on the agenda.
Fewer senior figures from the world of banking are expected to attend the annual Davos forum with government leaders and central bankers are set to dominate the five-day event.
About 1,400 chief executives and chairmen of global corporations will attend, the highest number since the Davos gathering started as a small business and academic think-in in 1971.
Irish businessmen who will be among 2,500 participants scheduled to attend including telecoms and media tycoon Denis O'Brien. While Bank of Ireland chief executive Brian Goggin, who announced last week that he will retire later this year, was scheduled to attend a bank spokesman said this was now unlikely.
AIB chairman Dermot Gleeson had been due to attend but decided in recent days not to travel.
Peter Sutherland, chairman of Goldman Sachs International and energy giant BP, and Sligo-born Niall FitzGerald, deputy chairman of media company, Thomson Reuters, will travel to Davos.
Ireland's EU Commissioner Charlie McCreevy and Archbishop of Dublin Diarmuid Martin will also attend the Swiss gathering.
Additional reporting Reuters/Bloomberg
