Bad bank ? Paid by taxpayers ? No, thank you. ~ Manage Your Loan

Wednesday, September 25, 2013

Bad bank ? Paid by taxpayers ? No, thank you.

 It seems safe and the solution taken to fix the banking hole will be the creation of a bad bank , which were brainstorming some time as a possible solution that would take the Government . As a reminder , a bad bank is a society which would consolidate the toxic assets and problematic financial institutions have in their balances.Sin But in my opinion , this is not the best solution from the point of view of the taxpayer.

 The bad assets would be priced for above market value now , so that the state (and thus the taxpayer ) will have to absorb some of the losses , since now the book amount of these assets is overrated. Is this the solution?

It is still a mystery how which will articulate the bad bank , but it is almost certain that their legal form will be that of asset management company without banking license. This is an important nuance because, unlike other banks, will not be funded at the ECB official interest rate in effect at this time which stood at 0.75 %. This condition is signed on the memorandum of understanding of conditions to rescue the European Union to Spain . My interpretation of this is that the EU does not want to assume any cost sanitation as banking is concerned, more so when you consider that Spain is imminent rescue .

Therefore, the first question is obvious. With markets currently closed , what is going to get the money Spain to create a bad bank ? It is estimated that the cost of bad bank could become 100,000 million euros. In an economy as burdened as ours, the risk of the failure Spanish public finances is more than likely . Not to mention the uncertainty that the liquidity provided by the bad bank to commercial banks effectively serve to recapitalize the financial sector.

Second, are you going to get the liquidity provided to the real economy ? The function of this bad bank should provide liquidity to banks to boost credit, but it is unclear who will reach out to businesses , so in need of a revival in credit to keep their production structures.

Finally, the biggest question may be to what will happen to those assets once in possession of the public -owned bad bank . The assets remain in this state bad bank quarantine outside the banking system to keep it clean . One of the possible options could be selling them to investment funds or foreign banks (there are many Russian investors interested in acquiring real estate developments in our country) ; solution , should recover the amount of the sale would be the least unjust to the solutions from the point of view.

Creating the bad bank may be one of the solutions, but in any case could be presented differently. One of them could be the conversion of the debenture into shares. In this case , creditors become shareholders, thereby reducing the amount contributed by the state for recapitalization of banks , if not all . And in any case , we should establish accountability for those responsible for this mess not go scot-free. The bad bank is in any case a solution unfair.


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