Bad bank

(redirected from Bad Banks)
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Bad bank

A government owned entity that takes over and liquidates toxic assets from failed or declining financial institutions to leave them with a clean balance sheet. The strategy was last used during the Savings and Loan crisis of 1980s where this entity was called the Resolution Trust Corporation.

Bad Bank

A bank to which a bank holding company transfers non-performing assets from the banks it owns. This reduces the risk to which the transferring banks are exposed, which in turn increases their credit quality. A bad bank is also called a collection bank.
References in periodicals archive ?
PERHAPS the splitting of the Bank of Cyprus into a good bank and a bad bank should have been done last summer when the idea was first mooted by the Governor of the Central Bank Panicos Demetriades.
A bad bank would free the BoC of its problem loans and allow the creation of a normal bank that could support the economy noted Hourican.
The future of the bad bank, which will now be known as Northern Rock (Asset Management), has been less certain as it is responsible for over pounds 50bn of mortgages deemed to be at a higher risk of default.
One City banking analyst said: "The bad bank mortgage default rate of 10% is extremely high, way above the industry average of around 3%, but this is much better than initially feared and may make it more attractive to potential purchasers.
However, just weeks before Big Bad Banks hit bookstore shelves, former Federal Reserve Chairman Alan Greenspan did an about face.
It was pretty obvious to me from the get-go that Alan Greenspan had never met a big-time banker who he didn't like and had never met a small-time banker who he did like," Cloutier writes in Big Bad Banks.
The bill for assets acquired by bad banks has traditionally been footed by governments -- i.
A BAD bank would buy up toxic assets from troubled banks -- for example, non-performing loans (NPLs) -- at a discount and then try to sell any collateral for profit, if possible.
The study notes that Best does not dispute that bad banks, if ill- conceived and underfunded, can fail and threaten both policyholders and the industry at large.
It assists Best in performing its rating evaluation of good banks since bad banks pose potential credit, legal and market risks in the event of bad bank failures.
Bad banks have been used successfully to cleanse banking systems in Ireland and Spain, and one is being created in Slovenia.
Global Banking News-2 July 2009-ECB does not have objections to bad bank plans(C)2009 ENPublishing - http://www.