Improving investor confidence in bank solvency will likely require lower yields on Eurozone sovereign debt.

Questions regarding bank solvency, declines in credit availability and damaged investor confidence had an impact on global stock markets, where securities suffered large losses during 2008 and early 2009.

These and other rules are designed (amongst other things) to guarantee bank solvency and therefore to protect depositors and indeed to maintain a stable monetary system.

Yet, as Mr. Posen and other economists note, there are crucial issues of timing and market psychology that surround the discussion of bank solvency.

Although relevant Web pages explain that the guarantee relates only to bank solvency and not to any losses from adverse foreign-exchange movements, Ms. Hirshman worried that the distinction might be lost on less-sophisticated investors.

Financial turmoil involving banks and bank solvency is more likely to produce a recession than is turmoil limited to the securities or foreign-exchange markets.

A full-scale financial crisis happens if this sequence merges with another: if bank losses lead to fears about bank solvency, and thus to the withdrawal of funds, further bank losses and so on, as in the right-hand part of the chart.

If the key issue is bank solvency, converting debt to equity via bondholder haircuts presents an elegant solution to the problem.

Coordination against the crisis is considered vital to prevent the actions of one country harming another and exacerbating the bank solvency and credit shortage problems.

He believes that addressing bank solvency in this way would help address credit market liquidity issues.