YIKES

Europe Agrees to Bank Bailout

Dexia will be broken up and nationalized.

France, Belgium, and Luxembourg agreed Sunday to break up and nationalize the bank Dexia to prevent its failure—the latest troubling sign in Europe's ongoing debt crisis. Dexia, Belgium’s largest bank, had a global credit risk exposure of $700 billion—twice the size of Greece’s GDP—and under the rescue agreement, the bank will be partially nationalized by France and Belgium. Despite the rescue plan, there still could be fallout—France and Belgium are struggling to rein in large deficits and Moody’s warned both countries they could lose their Aa1 government bond ratings if they bailed out the bank. The near-collapse of such a large institution has left many wondering about the health of European banks—especially after reports that two of France’s top banks, BNP Paribas and Societe Generale, could soon be receiving capital as part of a plan by Europe to boost lenders’ financial strength.