Bad Bank
Barron's Banking Dictionary:
Top
Bad Bank
Specially chartered bank, acting as a self-liquidating trust, chartered by a bank holding company to hold nonperforming assets owned by a federally insured bank. Transfer of bad loans improves the Asset Quality of the seller. Also known as a collection bank.
Related Videos:
Top
Bad Bank
Investopedia Financial Dictionary:
Top
Bad Bank
A bank set up to buy the bad loans of a bank with significant nonperforming assets at market price. By transferring the bad assets of an institution to the bad bank, the banks clear their balance sheet of toxic assets but would be forced to take write downs. Shareholders and bondholders stand to lose money from this solution (but not depositors). Banks that become insolvent as a result of the process can be recapitalized, nationalized or liquidated.
Investopedia Says:
A well-known example of a bad bank was Grant Street National Bank, which was created in 1988 to house the bad assets of Mellon Bank. The financial crisis of 2008 revived interest in the bad bank solution, as managers at some of the world's largest institutions contemplated segregating their nonperforming assets into bad banks.
Federal Reserve Bank Chairman Ben Bernanke proposed the idea of using a government-run bad bank in the recession following the subprime mortgage meltdown in order to clean up private banks with high levels of problematic assets and allow them to start lending again. An alternate strategy considered was a guaranteed insurance plan that would keep the toxic assets on the banks' books but eliminate the banks' risk and pass the risk on to taxpayers.
Related Links:
Did this accounting convention contribute to the credit crisis of 2008? Find out here. Mark-To-Market Mayhem
Is the U.S. Congress' failure to rein in these mortgage giants to blame for the financial fallout? Fannie Mae, Freddie Mac And The Credit Crisis Of 2008
Would a similar crisis have occurred if iPhone investors were offered the same loan options as homeowners? Dialing In On The Credit Crisis
These indicators can illuminate the depth and severity of problems in the credit markets. Top 5 Signs Of A Credit Crisis
Post a question - any question - to the WikiAnswers community:
Copyrights:
Barron's Banking Dictionary
Dictionary of Banking Terms. Copyright © 2006 by Barron's Educational Series, Inc. All rights reserved.
Read more
Mentioned in
Bank Brothers
(Crime Film)
Lucy Gets Locked in the Vault: The Lucy Show (TV Episode)
(1963 TV Episode)
Barometer Soup
(1995 Album by Jimmy Buffett)
Aozora Bank, Ltd.
(Public Company)
Make Way for Tomorrow
(1937 Drama Film)
» More