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 ?
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 official said that the government has dropped the idea of setting up a bad bank and solving the NPA problem has more importance than pursuing consolidation in the banking sector.
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.
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.
9bn HFSF buffer that would serve as capital for the bad bank.
The establishment of a bad bank is set to have two advantages: the state ownership in the new bad bank will dilute to below 5% and it is the first step towards making state bankA BelfiusA saleable again.
As it continues to sell its British portfolio, bad bank NAMA will make available a block of land outside London in the market.
Instead RBS will create an internal bad bank of problem assets to be run off over the next three years, avoiding the "effort, risk and expense" of the fully nationalised alternative.
RBS is the biggest faller on the FTSE100 this morning after announcing the set up of an internal bad bank to ring-fence the bank's riskiest loans- a move backed by the UK government.
The plan will avoid the need for a shareholder vote, unlike a full nationalisation of the bad bank, a strategy which faced vocal investor opposition.
Osborne added: "We are looking at the case for a bad bank and, if not a bad bank, what is the alternative strategy that really gets on top of the problems in that bank and goes on being what I want it to be, which is a bank supporting the British economy.