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dc.contributor.authorSchäfer, Dorotheaen_US
dc.contributor.authorZimmermann, Klaus F.en_US
dc.date.accessioned2009-06-12en_US
dc.date.accessioned2010-02-04T13:06:15Z-
dc.date.available2010-02-04T13:06:15Z-
dc.date.issued2009en_US
dc.identifier.urihttp://hdl.handle.net/10419/29765-
dc.description.abstractWith banking sectors worldwide still suffering from the effects of the financial crisis, public discussion of plans to place toxic assets in one or more bad banks has gained steam in recent weeks. The following paper presents a plan how governments can efficiently relieve ailing banks from toxic assets by transferring these assets into a publicly sponsored work-out unit, a so-called bad bank. The key element of the plan is the valuation of troubled assets at their current market value - assets with no market would thus be valued at zero. The current shareholders will cover the losses arising from the depreciation reserve in the amount of the difference of the toxic assets' current book value and their market value. Under the plan, the government would bear responsibility for the management and future resale of toxic assets at its own cost and recapitalize the good bank by taking an equity stake in it. In extreme cases, this would mean a takeover of the bank by the government. The risk to taxpayers from this investment would be acceptable, however, once the banks are freed from toxic assets. A clear emphasis that the government stake is temporary would also be necessary. The government would cover the bad bank's losses, while profits would be distributed to the distressed bank's current shareholders. The plan is viable independent of whether the government decides to have one centralized bad bank or to establish a separate bad bank for each systemically relevant banking institute. Under the terms of the plan, bad banks and nationalization are not alternatives but rather two sides of the same coin. This plan effectively addresses three key challenges. It provides for the transparent removal of toxic assets and gives the banks a fresh start. At the same time, it offers the chance to keep the cost to taxpayers low. In addition, the risk of moral hazard is curtailed. The comparison of the proposed design with the bad bank plan of the German government reveals some shortcomings of the latter plan that may threaten the achievement of these key issues.en_US
dc.language.isoengen_US
dc.publisherDeutsches Institut für Wirtschaftsforschung (DIW) Berlinen_US
dc.relation.ispartofseriesDiscussion papers // German Institute for Economic Research 897en_US
dc.rights.accessrightsinfo:eu-repo/semantics/openAccess-
dc.subject.jelG20en_US
dc.subject.jelG24en_US
dc.subject.jelG28en_US
dc.subject.ddc330en_US
dc.subject.keywordFinancial crisisen_US
dc.subject.keywordfinancial regulationen_US
dc.subject.keywordtoxic assetsen_US
dc.subject.keywordBad Banken_US
dc.subject.stwBankenkriseen_US
dc.subject.stwSpezialbanken_US
dc.subject.stwBad Banken_US
dc.subject.stwKreditrisikoen_US
dc.subject.stwUnternehmenssanierungen_US
dc.subject.stwBankinsolvenzen_US
dc.subject.stwBankenpolitiken_US
dc.subject.stwWirkungsanalyseen_US
dc.subject.stwFinanzmarktkriseen_US
dc.subject.stwDeutschlanden_US
dc.titleBad bank(s) and recapitalization of the banking sectoren_US
dc.typeWorking Paperen_US
dc.identifier.ppn601704134en_US
dc.rightshttp://www.econstor.eu/dspace/Nutzungsbedingungen-
dc.relation.projectidinfo:eu-repo/grantAgreement/EC/FP7/217266-
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