Bad Bank

Financial Times  Oct 5  Comment 
Company faces extra challenge from mainland rules that bar it from offering discount shares
Wall Street Journal  Sep 14  Comment 
China wants to tap more foreign capital to help clean up its debt mess. Investors should steer clear.
Wall Street Journal  Sep 13  Comment 
China wants to tap more foreign capital to help clean up its debt mess. Investors should steer clear.
Forbes  Aug 13  Comment 
Austria’s province of Carinthia is in trouble again. Followers of the Hypo Alpe Adria (HAA) saga will know that under its erstwhile leader Joerg Haider (who conveniently died  in a car crash in 2008) Carinthia’s government guaranteed HAA’s...
Wall Street Journal  Aug 12  Comment 
Don’t look now, but Citi Holdings, the “bad bank” Citigroup created to dispose of unwanted assets, has logged four profitable quarters in a row.
Reuters  Jun 16  Comment 
* Underlying pretax profit 1.4 bln stg, up 11 percent (Recasts, adds comments from CEO interview)
New York Times  Mar 30  Comment 
Greece’s government has proposed setting up a bad bank to deal with the rising level of bad loans, a finance ministry official said on Monday.
Reuters  Mar 27  Comment 
Andorra will create a 'bad bank' to group the assets of Banca Privada d'Andorra (BPA) linked to illicit activity, it said late on Thursday, as the principality battles to rebuild the reputation of its banking system.
Forbes  Mar 2  Comment 
Last year, as part of the winding-up of the failed Austrian bank Hypo Alpe Adria, the Austrian authorities created a state-owned “bad bank”, known as HETA. State-owned “bad banks” are all too familiar as resolution vehicles for failed...
Reuters  Feb 4  Comment 
Excellere Capital Group would like to buy the "bad bank" that is winding down the assets of defunct Austrian lender Hypo Alpe Adria, the U.S. firm said on Wednesday.


A "Bad Bank" is a bank---or some type of financial institution---that the government would establish to buy and hold all of the "bad," or toxic, assets other banks and financial institutions want to sell and get off of their books.

Most of these bad, or toxic, assets are mortgage-backed securities that have been losing value during the past year. Actually, one of the greatest difficulties with mortgage-backed securities during this financial crisis has stemmed from the fact that nobody has been able to come up with an accurate value for these assets.

Ideally, setting up a "Bad Bank" would help solve this problem because the "Bad Bank" would have to come up with a price it was willing to pay for the bad assets---thus setting a value for the assets that everyone could use in their valuations.

It's effect on Bank Stock prices

Ideally, if the government sets up a "Bad Bank" to buy up all of the toxic assets, investors will be more comfortable investing in banks and buying their stock because the risks associated with doing so will have been diminished.

Unfortunately, determining which assets are toxic today and which assets will be toxic in the future is a difficult task, and it will be tough for banks to shed all of their risk associated with mortgage-backed securities, etc. While nobody is expecting perfection here, the remaining risks may be enough to keep bank stock values depressed for some time.

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