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Bad Bank AccountBath Bank Account
Bad bank is one that was created to buy the bad debt of another bank with significant bad debt securities at the current rate. The transfer of these funds to the bad bank will enable the initial bank to clean up its accounts (although it will still be obliged). Bad bank structures can also take over the high-risk asset values of a group of banks instead of a group.
Whereas stockholders and bond creditors usually loose cash through this approach, investors usually do not. A bank that becomes bankrupt as a consequence of the lawsuit can be recapitalised, nationalised or wound up. When they do not become bankrupt, it is possible that the bad bank manager will concentrate solely on maximising the value of their risky asset.
There are some who criticise the establishment of bad bank institutions, pointing out that when states take on bad credit, it will encourage them to take excessive risk, resulting in morale hazards. In 2009 McKinsey presented four fundamental Bad Bank series. The Grant Street National Bank was a well-known example of a bad bank. Mellon Bank was founded in 1988 to accommodate the bad debt of Mellon Bank.
In 2008, the 2008 turmoil rekindled interest in the bad bank as some of the world's biggest banks' executives considered separating their distressed asset portfolios. The chairman of the Federal Reserve Bank, Ben Bernanke, suggested the suggestion of using a state-run bad bank in the economic downturn following the collapse of the sub-prime hypothec. It would aim to purge high-net-worth problem asset households and enable them to start again to lend.
That would keep the poisonous asset on banks' accounts, but remove banks' risks and pass them on to the taxpayer instead. In 2009, the Republic of Ireland set up a bad bank outside the USA, the National Asset Management Agency, in reaction to the country's own credit crunch.