What is a bad bank?
A bad bank, also known as an aggregator bank or a collection bank, is a bank that buys unroacked assets to remove these assets from other banks. If all banks work with a bad bank, the bad bank basically sequences such assets so that they cannot drag the credit rating and performance of other banks. The wrong bank can sell these assets, invest them or destroy them in other ways. Unfulfilled assets or "toxic assets" are assets that have theoretically value, but are considered unseen because no one wants to buy them. The bank with non -paying assets has a lot of money on paper, but in fact less access to cash, and this can cause a credit crisis because banks are trying to raise funds for everyday operation and start limiting lending.
Several governments have used bad banks to solve credit crisis before they get worse. To make this technique effective, many economists agree that they have to meet several criteria. HingeVé, the bank is managed by a government or government agency that provides bank deposits, and is usually established as a self -administered trust, which means that it dissolves after the bank's mission is met. A bad bank is a well -worn bank that is operated and for people, a concept with some nations have difficulty with.
Another critical factor is a cooperation agreement involving more banks. If Banks A, B and C agrees to sell their unfulfilled assets to the nationalized bank and ban d not go with the plan, the market will continue to be unstable. Finally, the units of the must be registered before selling the wrong bank. In other words, banks cannot demand "fair market" or paper value of their toxic assets. He must agree to write the overall debt and pay the loss for getting an asset from their books.
If a bad bank buys toxic assets at a fair market price, it will be a very expensive effort. Since the funds for the purchase of assets come from the government, it could pSlip the national economy on the knees, because considerable funds are tied in managing toxic assets. This can extend the financial crisis that caused the creation of a bad bank in the first place.
Bad banks are just one of the many potential solutions to the economic crisis and must be carefully considered along with other options. The tendency to panic, when they face financial crises by government officials, can contribute to some very bad decisions that may have long -lasting impacts, which is important to avoid in a hurry to any specific action plan, from the wrong bank to the stimulation plan.