Britain's vote to exit the European Union is the latest market shock to underscore the ill health of Europe's banks: the sector's shares took a major hit following the vote. The former head of Switzerland's bank unveiled a «no-brainer» plan to rehabilitate them. 

Markets have battered banking shares in the eurozone almost as much as those of British banks following the Brexit vote,. This highlights their weak balance sheets, feeble growth at holme as well as a huge pile of bad loans from years of loose lending.

Italy has repeatedly attempted to gain Brussels' approval to pump billions into its ailing banks, most recently by claiming its banks increasingly pose a systemic risk to the eurozone. 

Bail-In Rules Rejected

The country's latest suggestion was to suspend bail-in rules, in order to publicly fund the rejuvenation of its ailing banking sector. The idea was coolly received by other European leaders including Angela Merkel, who argued against reversing EU rules that only came into force at the beginning of this year.

Now, former Swiss National Bank head and Blackrock vice-chairman Philipp Hildebrand has come up with a relatively simple and straightforward two-step solution that could appease Italy and the bloc.

European TARP

Hildebrand envisions a European version of the Troubled Asset Relief Program, or TARP, a $700 billion bailout of U.S. banks by the government following the financial crisis of 2008-09. The U.S. Treasury took stakes in banks as part of the program, which it ended up making an $15.6 billion profit selling several years later.

The plan hinges on Europe's cooperation politically: the bloc would have to suspend the temporary stakes in banks from government debt burdens, which some countries have trouble meeting.

Outside Fiscal Rules

«Since they would be intended to be temporary, the equity participations taken by governments under this scheme should be excluded from calculations of government debt for purposes of the EU’s fiscal rules,» Hildebrand wrote in an «FT» editorial.

Given Merkel's rejection of Italy's bail-in suspension idea, the political will to bend the rules to rehabilitate banks in some European countries is highly uncertain.

Tackling Europe's Problems

Hildebrand, who has long warned that monetary policy and cheap money cannot solve Europe's structural problems, said a TARP-like plan for Europe could solve deeply-rooted weakness in the eurozone banking sector, which has in turn dogged the wider economy.

He said the plan would also show that European policymakers – which have long been at odds over structural reforms – are serious about tackling problems. 

«It's a No-Brainer»

A bailout would also end worries over some European countries having to pay for bad loans in southern Europe bailout,  paving the way for a banking union, Hildebrand says.

The solution he proposes wouldn't break any rules, set any severe precedents or incentives, or entail a lengthy legal back and forth, he argues, though the EU would have to allow European governments to take stakes in their banks.

«It is, in short, a no-brainer,» Hildebrand says.