Some of those bad or near-bad bank loans would come back to life, thereby enabling banks to clean up their portfolios without destroying the economy.
It has reduced its bad bank loans by more than half, and reoriented the financial and other sectors to more of a profit-driven, shareholder-conscious way of doing business.
Ecuador recently became the first country to default on its Brady bonds, which were created in the late 1980s to allow developing countries to repackage bad bank loans into new bonds backed by U.S. Treasury securities.
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.
His bank set aside less money to cover bad mortgage loans, as did Bank of America, which reported results earlier on Wednesday.
Morgan Chase plunged by 5% after the American investment bank gave warning that bad loans to telecoms companies and falling trading revenues would dent its third-quarter profits.
The bank had agreed to repurchase bad loans it sold to Fannie and Freddie, which now appear to be demanding more loan repurchases than Bank of America had expected.
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.
The plan would stabilize local property values and simultaneously remove bad loans from bank balance sheets.
FORBES: A Monster Real Estate Paradigm Shift Demands A New Direction for Capital
The largest source of expense for this business comes from the provision for losses that the bank sets aside for potential bad loans.
This leads on to the next necessary step: develop the little-used bad-loan agency, the Resolution Collection Bank, and set it to work buying bad loans.
In 1999 the finance ministry decided to set up four asset-management companies, one for each bank, to deal with the bad loans.
Net profits at Komercni fell by 35% year-on-year, and would have been lower still had the bank not slashed its provisions against bad loans by a quarter.
Its loans will be transferred to the National Asset Management Agency (Nama), the Irish "bad bank" responsible for recovering the value of problematic loans made by other Irish banks.
Banks, awash in bad debt, are to be encouraged to start lending again to property and construction projects, and the central bank will be less strict in classifying bad loans.
This centralized bad bank would take the FDIC off the hook for a lot of banks' bad loans.
The insurance meant that when the loans went bad, the bank could ask the government agency to cover their losses.
This risk is mitigated by the current moderate level of nonperforming loans (1.1% of total lending), larger provisions for bad loans, and more stringent bank capital-adequacy requirements in recent years.
The merger of Hokkaido Takushoku and Hokkaido Bank will combine two banks saddled with huge amounts of bad loans into one.
While SNS Reaal has been trying to direct its own trajectory, an attempt to unload its property loans into a so-called bad bank, with other Dutch banks as shareholders, was shot down by the European Commission earlier this month because of competition concerns.
During the 1980s, for instance, Bank of America was nearly as big a mess due to bad loans as was Continental Illinois.
FORBES: Are Consumer Bank Customers Mules -- Or Will They Move if Kicked Hard Enough?
But other analysts were wary because the draft lacked detailed instructions on bank reform, tax and accounting issues, and on how bad loans would be reduced.
For Spain there remains the big imponderable of whether the Spanish authorities will insure its banks against further losses on their dodgy loans or physically remove the dodgy loans and put them into a new bad bank.
The usual currency of the venture capitalist is equity, not bank loans, not least because Internet start-ups are notoriously bad at making money and so have little free cash to service debt.
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.
Michael Mayo, until recently the top banking analyst for Credit Suisse First Boston, thinks that leveraged lending has been responsible for the recent increase in bad or problematic loans at a raft of American banks, including Bank of America, FleetBoston Financial, Bank One and Wachovia.
They will do this in part by selling their most problematic loans to Sareb - the Spanish government's "bad bank", which will be responsible for seeking to recover as much of their value as possible in order to mitigate the cost to taxpayers of rescuing the banks.
The government, in order to get the bank off its hands, agreed to absorb tens of billions of dollars' worth of bad loans.
Many banks, including Bank of America, which bid aggressively for loans, have warned investors of big losses on bad loans.
应用推荐