bad banks

This week's German plan to set up several bad banks was no more than a down payment on the restructuring ahead.

Bad banks create a clean break that enables the good bank left behind to get on with the real job of raising capital and lending it out.

Perhaps it is the realisation that there will not be a unified approach to dealing with bad banks that has soured things.

And bad banks have been widely criticised for the slow pace of disposal of non-performing loans and disappointing cash recovery rates.

Every other utterance is about "fighting" for the middle class, "fighting" for jobs, "fighting" against the big bad banks.

The advantage of nationalisation, then, is that it would allow restructuring of assets and liabilities into "good" and "bad" banks.

That's what happened in the savings and loan crisis: the feds took over ownership of the bad banks, not just their bad assets.

Other ideas that are floating around include hiving off toxic loans into taxpayer-funded "bad banks" .

Even so, Citi's shift in direction may signal that policymakers are looking again at the idea of bad banks.

Bad banks enshrined "nationalisation of the losses" caused by US mortgage-backed assets and meant they fell to the taxpayer.

Should governments prop up credit markets by offering guarantees or creating bad banks?

The bad banks would have a proper match between assets and liabilities, a critical ingredient for managing any investment pool.

That is partly because Beijing decided a decade ago to set up four bad banks, or asset management companies, to manage toxic assets.

The number of bad banks is actually going up.

European ministers this week discussed setting up "bad banks" to buy illiquid assets.

How to make bad banks work | The spectre of nationalisation