Buzzword: Bad Bank

[M_Smith]

Buzzword: Bad Bank
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What does it mean? The ?bad bank? is a strategy last used during the Savings and Loan Crisis of the 1980s. Under the Resolution Trust Corp. the federal government took over failed banks, pulled out their bad assets, liquidated them in an orderly manner, and pumped cash back into the banks.
Why the buzz? The bad bank concept is the latest idea being floated to prevent the banking industry from collapse. Though the government hasn?t made any formal announcement as to how the program would work, it?s expected to be run by the Federal Deposit Insurance Corp.
But unlike the Resolution Trust Corp of the 1980s, this bad bank would be buying the toxic assets of banks that haven?t yet failed. Figuring how much to pay for these assets is one problem, since the banks themselves may not know their worth, or there may be no current market price. If the government overpays for these bad assets the taxpayer may be stuck footing the bill, and the government may need to insure some of these assets from future losses. In return for buying these assets the government may become a major shareholder in the banks. Another concern not yet addressed is whether the ?Bad Bank? will decide to close banks deemed too far gone to save.
CNBC reported today that the difficulties the government faces in working out the details might derail the idea.?Chris Fichera

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