Bad bank


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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 ?
German bank, Deutsche Bank (NYSE: DB), has been queried about its bad bank proposals by US authorities.
Now, they have decided the creation of a bad bank is the solution to the NPL problem and one that will save the Co-op Central Bank about which all our politicians have a soft spot.
The recent economic survey mentioned about formation of a bad bank that will purchase stressed assets and take them to resolution.
Nama is the so-called bad bank set up in 2010 to take loans linked to property investments off bailed-out Irish banks at a discount.
The largest creditors, including Commerzbank, Pacific Investment Management and Dexia's German unit rejected the proposal made by KAF on January 20 to buy back 75% of the face value of the bad bank's senior debt and 30% of the face value of its subordinated debt.
For instance, at a recent pre-Budget meeting with Finance Minister Arun Jaitley, some economists proposed the setting up of a Bad Bank to get rid of the banking system's Rs 8 lakh crore stressed assets.
To achieve these goals, the Bank of Portugal transferred five senior unsecured Novo Banco bonds governed by Portuguese law totaling [euro]2 billion into the bad bank BES where investors will incur large losses.
The creation of a bad bank, together with other government reforms, "should further improve the banks' ability to lend to the real economy and drive economic growth," the commissioner added.
The bad bank's net loss in 2014 amounted toA EUR 7.4 billion.
This is mainly because the volume of NPLs held by Greek banks vastly exceeds the EUR10.9bn HFSF buffer that would serve as capital for the bad bank.
The purpose of such a strategy is to shield the good assets - the retail banking business in UK and Africa - from the bad assets that will be bundled into the bad bank. As a result, the high risk in these bad assets will not negatively impact the good assets.
(SeeNews) - Mar 5, 2014 - Belgian state bankA Belfius and the central bank have examined the option toA hive off toxic loans into a bad bank, dailiesA De Standaard and Le Soir reported Tuesday.