Bad Banks

Ever heard of this word “bad banks”? I have never even heard of a good bank, bad bank is way far off. With the world economy in recession/slow down a new word is coined “Bad Banks”. Frankly speaking when I read this word “Bad banks” and its definition I thought “damn what the hack is this” the definition is so economic.

According to Google, bad banks also known as collection bank are specially chartered banks, acting as self-liquidating trust. They hold all the non performing assets. Hmm!! I wonder how a bank holding all the non performing assets, is able to self liquidate. What do they do to generate liquidity?

As I am writing this posting my curiosity is increasing to know more about these bad banks.

Ahh! After much profound research, I finally found how these bad banks work. If the post sounds a little interesting go ahead and read to know more about the new word.

Bad banks are government financed banks and have tons of stinking assets. Bad banks repackage these stinking assets give them a good look and feel, and sell them to private sectors at a steep discount. Liquidity thus generated is again used by the banks for lending purpose.

The concept of bad banks looks so simple now but the fact is that bad banks haven’t really worked that way. God save us all!
The more I read about it, the more confusing it gets. Why these economists always land up with a gloomy picture and can’t predict a better solution like engineers.

I should get back to work. I also have a fire drill today at my company. Next post will most probably have all the stunts performed by my team mates during the fire drill. :)