Saturday, 17 January 2009

Bad bank

The 'bad bank' solution that Hank Paulson dumped in favour of the Prime Minister’s capitalisation plan last year is back.

While the last bail out was necessary to stop a total collapse, they say, a bad bank is now needed to suck up ‘toxic assets’ poisoning the financial system.

The Telegraph have done a good bit explaining what it all means. They write:

"As with this entire crisis, the main challenge is how to value the assets.

"In order to take control of the toxic investments, the Government would have to give the banks some money in return.

"If it sets the price too low, banks will either refuse to hand the assets over, thereby not solving the systemic problem of a lack of confidence, or will have to take new write-downs to recognise the lower value, further weakening their own books.

"If the price is too high, there will be an outcry that taxpayers’ money is being squandered to save bankers’ skins."

No comments:

Post a Comment