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Greek government considers creating a big “bad bank”

 Greek daily Imerisia reports that the Greek government is considering submitting legislation to create a bad bank to take non-performing loans off the books of Greek banks. The move would not only aid banks but give more time to those struggling to repay loans, according to the article. The paper also notes that the recapitalisation need of Greek banks has reached €33bn, up from €27.5bn.Daily Kathimerini reports that the Greek government has announced that it met its fiscal targets for 2012, with a primary surplus of €435m. (via openeurope)

What is a bad bank?

Bad bank is a term for a financial institution created to hold non-performing assets owned by a state guaranteed bank. Such institutions have been created to address challenges arising during an economic credit crunch wherein private banks are allowed to take problem assets off their books.

Criticism

Critics of bad banks argue that the prospect that the state will take over non-performing loans encourages banks to take undue risks, which they otherwise would not. Another criticism is that the option of handing the loan over to the bad bank becomes essentially a subsidy on corporate bankruptcy. Instead of developing a company that is temporarily unable to pay, the bondholder is given an incentive to sue for bankruptcy immediately, which makes it eligible for sale to a bad bank. Thus, it can become a subsidy for banks on the expense of small businesses (see more here)

PS Excellent! Greek taxpayers will have yet another pleasure to  support the banks and take the financial burden of the bad bank on their shoulders.

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6 comments

  1. It is the Greek tax payer who bankrupted the banks by taking huge loans which they can now never pay back and the Greek Government and Banks for letting the bubble happen in the first place through lies!
    Vicious circle, everyone is to blame!

  2. It is the European banks who bankrupted themselves through reckless, vulture lending. Nothing less.
    The bad bank “idea” is a really bad idea. Ask the Irish, they have their “bad” bank. And it sure is a bad one…
    What was supposed to be the cheapest fastest bank bailout in history has turned into the most expensive (per capita), ongoing daylight robbery of Irish Joe Soap to preserve a scandelously corrupt, immoral and rotten to the core business called “banking”. Only a week or 2 ago it was calculated that the Irish tax payer has, though this bad bank system, coughed up no less than 42% of the total European bank debt.
    This “bad” bank idea is just another way of making everybody but the banks pay for the greed of the banks and their bonus-driven managers.

  3. State Guaranteed = Gun to the taxpayer’s head.
    I doubt most people even understand this.

  4. “It is the European banks who bankrupted themselves through reckless, vulture lending”

    Yeah…It’s NEVER the borrowers fault…Naaaaahhhh.

  5. This is a very simple linear process. Irresponsible borrowing is simple impossible without reckless lending. So you look at the lending practices, not the borrowing patterns. They are a product of the former, not the driving force.
    The decision to give the loan is with the lender, not the borrower. The moment bank policy changed from safeguarding the banks’ reputation, financial security and revenue to a policy of generating as high a bonus as possible for the bank managers (a bonus based on client numbers rather than loan performance!), the whole thing went South.
    A bank manager has (or had) the responsiblity to safeguard a bank against risky loans. The introduction of sub-prime lending did do away with that requirement and turned responsible lending into irresposible gambling. And we are now living the result of the irresponsible behaviour of these guys.

    As for the borrowers, they are like children in a sweet shop. If you deny people access to money for a long time, and then suddenly open the flood gates without safety measures in place, this is what you get. If you deny a child toys for years, then bombard it with advertising on just how much fun these toys are and put in a toy shop and tell it to take what it wants, it can pay later, do you really think that child is going to see how far the piggy bank will let it jump? Or is the child going to simply empty the shop?
    The responsibility of the bank manager is to prevent clients from borrowing too much, through the implementation of safety measures, checks and risk management. Instead of managing risk, they became bonus managers. Their bonus. Yes indeed, they are solely responsible for the mess we are in, because of nothing else but greed.

  6. I would like nice fancy bicycle to ride to work but no loan for Kunta as I’m afraid of banks.