The bulk of that money is now being raised by forcing losses on large deposit holders as well as bond holders in Laiki bank, which will be split into a bad bank of toxic assets and a remaining viable core business.
Peter Morici, professor at the Smith School of Business at the University of Maryland, says we still need a bad bank to sweep away the toxic assets and bad loans.
Paul Miller of Friedman Billings Ramsey, an investment bank, says a government bad bank can pay more for assets than a private investor because its cost of funds is irrelevant, it needs no capital and can hold the assets to maturity.
"We are convinced that we will be able to bring in investors interested" in the bad bank's assets, he added.
Cautious valuations will help set a floor for property markets and make it easier for the bad bank to sell assets quickly.
ECONOMIST: ��Bad banks�� seldom turn a profit but are still useful
Treasury's plan to remove bad assets from bank balance sheets could help.
While the "good bank" will be eventually sold to a third party, the "bad bank" will run down its remaining assets and will eventually be liquidated.
In recent weeks, talk of a government-created "bad bank" to absorb troubled assets resurfaced as a solution, as did a government insurance program to guarantee assets.
The good bank will have all the remaining assets, including derivative contracts and its loan to the bad bank.
Other Wall Street firms would inject capital into the bad bank to keep it afloat while its assets can be unwound over a period of time in a way that wouldn't disrupt the financial system more than it already has been.
Like a bad bank, the aim is to isolate toxic assets, encourage private money to come in and discourage banks from hoarding their capital.
The first is to be conservative when valuing the assets that will go into the bad bank, even if this imposes steeper losses on the banks handing them over.
ECONOMIST: ��Bad banks�� seldom turn a profit but are still useful
At a late stage Mr Geithner rejected the idea of a government-run bad bank (as well as blanket guarantees for noxious assets), put off by the high upfront cost and the problems it would have valuing the debt.
Lehman went under Sunday night after failing to find a buyer for itself or unloading its assets into a separately capitalized "bad" bank.
Mr de Guindos is in the city to sell foreign investors on the so-called "bad bank", where Spain will park the poor property assets that are weighing down its lenders.
The nationalisation comes after the European Commission blocked an earlier plan that would have seen the country's other large banks, Rabobank, ING and ABN Amro, contribute capital to a so-called "bad bank" to house SNS Reaal's distressed property assets.
Bo Lundgren, one of the architects of Sweden's much-vaunted 1990s bank bail-out, stresses the importance of transparent valuations of bad assets.
ECONOMIST: Meltdown may have been averted. But the crunch is not over
Fuld is also contemplating the sale of mortgage assets or spinning them off into a separate "bad bank" in which shareholders would retain an interest.
Mervyn King's remarks that he wants to see RBS's poisonous and low quality assets hived off into a new so-called bad bank matter - but probably not in the way that seems most obvious.
Letting banks revalue illiquid assets might also take some of the pressure off the 'bad bank' idea that Treasury Secretary Timothy Geithner has championed.
In addition to some of the former assets of Hokkaido Takushoku Bank, it will have to take on the bad loans of Nippon Credit Bank and Long-Term Credit Bank, both nationalised last year.
But a bad bank faces different problems, the most serious of which is setting a price for assets that both it and the seller can agree on.
Large depositors in Laiki Bank, which is being broken into good and bad banks, are likely to see nearly all of their assets written off.
One part ("the bad bank") will assume all the residential and commercial real-estate loans and securitized mortgages as assets, and all the long-term debt as liabilities.
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