The cost of the Spanish economic solution

Escrito el 29 Septiembre 2012 por Mikel Aguirre en Economía española

There has been a rapid deterioration of the Spanish economy but still the country collects taxes reasonably well and successive national governments have achieved respectable performance in conduction economic policy.

The solvency of the Spanish government has been deteriorating with the spreads on the country sovereign bonds moreover reaching alarming levels since June.  But excessively drastic austerity in terms of the impact on severely weakened domestic demand will not resolve the Spanish crisis.

The public sector has inherited tow closely tied burdens: The deteriorating of the quality of bank assets and the over indebtedness of private actors with companies and households.  Corporate and household debt has become a major problem for the banks.  Hence it is urgent a banking reform.  A loss of depositor confidence has a devastating effect on the entire financial system and economy.  European aid is clearly welcome and it may be supplemented, and perhaps one of the most intelligent ways to spend this aid is through the creation of the so called bad bank.

What means a solution as the creation of a bad bank with a restructuring of private debt?

This will allow breaking the disastrous spiral of demand contraction and economic deflation but will entail a socialization of the losses with the cost borne by the entire European community.  It would at least make it possible to halt the downward spiral currently gripping the monetary union´s fourth largest economy.

Are the rest of European economies willing to pay their part in the Spanish losses?


Jiyeon Lee 30 Septiembre 2012 - 19:06

In 1988, Mellon bank established a bad bank funded entirely by private investors and achieved successful outcome. It does not seem feasible to be 100% financed by private funding considering current economic situation in Spain. However it is speculated that individuals still can bear some burden to boost its own country’s economy, i.e. tax collection rate. If Spanish government tries to raise fund for a bad bank through private sectors first it is more likely to reduce resistance towards support from other EU countries. Without such gestures Spain may obtain enough support from other EU countries but what is more important is the timing. The faster the action is taken the faster the economy will recover preventing it from getting worse.

Abheet Bharti 1 Octubre 2012 - 01:46

Agreed that such a bad bank would help halt the downward spiral of prices. But such a bad bank, which is similar to an AMC, will only buy the bad assets if it thinks that it can get them for a price that is in line with their actual worth today and has a prospect of making money with them going forward, and this won’t be easy. Hence, economically incentivising other European economies would be a challenge.
Also, the signs around the world are not encouraging either. The 3 bad banks that were created in China to clean up debt in its banking system in 1999 have been unable to pay their principal and in fact have now been given another decade and so far have been able to recover 20% of the value. So, even if other European economies really want to help the Spanish economy, bad banks won’t appeal to them so-much!

Colin Manasse 1 Octubre 2012 - 13:41

I must agree with Abheet; to me, it seems that the creation of a bad bank is simply a continuation of an obviously inadequate perspective/approach to the situation: attempt to obfuscate responsibility and find some superficial quick fix to treat the symptom, not the actual problem. It seems that this approach is taken by both banks and government; one example of such inappropriate/ineffective perspective is in the services provided by the city/community of Madrid: while there is no end or reduction in the expenditures for superficial upkeep and maintenance of buildings and streets (I have seen public employee crews repainting private buildings that have only spots of paint missing, cleaning streets with 3 different types of machines…) but not putting any effort into maintaining the actual infrastructure and heart of the society (the crews did not fix the electrical disaster that was where they were painting, the telecom infrastructure in Madrid is a horrendous hodge-podge of private lines instead of having a solid fiber optic network with private companies as service providers, cuts in teachers/education funding instead of maintenance crews…). It seems both the government and economic sector in Spain have the same issue: treating symptoms, not the disease; I have heard little in terms of systemic changes to the spanish banking industry that will prevent such a situation in the future, only superficial fixes comparable to get rich quick schemes…perhaps it is this perspective/focus that is the reason for the situation in the first place, and perhaps this is what needs to be changed before we start classifying and pooling “bad” assets?

Namrata Walia 1 Octubre 2012 - 15:28

Bank of Spain figures revealed commercial banks held Problem property loans worth €184 billion, some 60% of their property portfolio at the end of 2011. This is a problem of gigantic proportions.
The proposed solution of setting up of a bad bank is simple in theory; by moving the impaired loans to the bad bank, the private lenders immediately realize the losses and get propped up with government money, ideally making them attractive again for private investors. Once wiped up and recapitalized, those banks start lending to viable businesses again and stimulate economic growth. And like in most cases, because the bad bank has long-term government support, rather than depending on unpredictable private investors, it can hold the impaired assets until the worst of the crisis is over and, in theory, eventually sell them for a better price.
This bad bank will try to draw the attention of private investors in order to limit costs for taxpayers, who are already amongst the highest tax-payers in the world. Hence, even though Spain is looking for private investors, it would need its backing as well, for such a solution to be feasible in the long term.

Rachel Robinson 1 Octubre 2012 - 17:32

Leaving the spanish financial system stuck and illiquid while spaniards continue to move their financial and cash assets out of the country poses quite a risk to the Spanish Economy which thus impacts the Eurozone and the EU. From the previous posts, putting bad assets in one place does shift the responsibility and blame away from those who created the situation and could potentially allow Spanish banks to continue to operate in the old manner and to create the same problem. However, the question at hand isn’t about who should be blamed, it’s about what’s the best way to solve the current situation. Clearly, longer term changes in regulation and structures are needed to ensure it doesn’t happen again. However, since things like this do happen to countries there should also be a plan for the larger EU community response next time an economy hits a liquidity issue. It is likely in the best interest of the Eurozone not to lose their 4th largest economy and Spain’s consumers in order to ensure their own recovery. Sometimes it’s important to deal with the situation at hand and although removing blame can be risky, blaming won’t make the positive change needed for the future.

Adriana Osuna Fong 1 Octubre 2012 - 18:50

The creation of a bad bank seems to be a strategic decision of the Spanish government to regain investors’ and the European Union’s confidence, and boost economic growth. Nevertheless, due to the huge amount of money that is needed to buy all those “bad assets” and the lack of confidence, the challenge is to convince investors that it is actually worth being a shareholder of such a bank. But more importantly, the creation of this “bad bank” is worthless if there is no change in the rules of the game: meaning that strict regulations should be implemented as well as specific rules regarding all banks that will sell their “bad assets”. Because in the end the perceived message will be “go on, because whatever you do wrong, the state will be there to rescue you”.

Javier Carredano 1 Octubre 2012 - 19:05

When talking about bad banks, we had a great example in Mexico. After the Tequila effect, a bad bank institution called Fobaproa (Fondo Bancario de Proteccion al Ahorro or Banking Fund for the Protection of Savings) was created in order to face the economic crisis at the end of the 90’s. Unfortunately, it didn’t come out as expected since all the big banks and some other “companies” or better said, businessman and politicians took advantage of the situation and benefited from this fund claiming that they were bankrupt, hence making fortunes out of this help and selling the companies to foreign investors afterwards. It’s important to say that still today the country is paying the interest generated from the Fobaproa. This is a good precedent of how government should consider having enough control to regulate this type of solutions and cover all possible loopholes before implementing anything.

Linn Vibran 2 Octubre 2012 - 00:02

I agree with earlier posts that the real issue at hand now is to solve the problem, and not place the blame, albeit tempting! In my opinion, the ‘bad bank’ is quite ambitious, however it is just a small step towards a resolution and the question is also at what price these assets will be sold. While Spain is struggling to convince markets it can avoid a full government bailout, I sincerely hope this banking law provides hope nonetheless.

Tracey Gill 2 Octubre 2012 - 12:00

I agree with Collin; The bad bank concept is a quick fix that doesn’t address the overall problem. It is a bandaid.. They are no longer able to devalue their currency to remain competitive; Spain needs to cut costs and become more efficient, including the government. If they cut half the bureaucratic processes associated with obtaining a student visa alone they would save a significant amount of money, and encourage more foreign students to come into the country bringing with them significant amounts of capital that would help to boost the economy. They should focus on what’s important; not the meager taxes collected on the visa itself, but on the cash inflow that comes with each student. Using the street cleaner example that Collin made, they should not focus so much on cleaning up the mess after it has been made, but instead, focus on preventing the mess from being made at all

Jose Manuel Izquierdo 3 Octubre 2012 - 15:57

I agree with most of the comments posted at the beginning of the blog. In my point of view if the government decides to go for the bad bank -without solving the major problem- it is crucial to know in advance the roll that the Spanish banks will have on it. I agree with the opinion of Mr. Juan Barba at IE event “Análisis del sector Inmobiliario Espanol” that it is crucial to develop a fair policy about how the banks will sell their toxic assets to the bad bank and the future role of it. Since the Spanish government has to have a minority position in the bad bank via using the Spanish restructuring banking fund (Fondo de Reestructuración Ordenada Bancaria, Frob), the other participants that will control the bad banks will be the private banks (Santander, BBVA, Bankia, etc.). Considering that there exists an incentive for Spanish banks to sell their toxic assets at a price that it is above the real market value in order to obtain a short-term profit that will artificially improve their financial position; therefore, the bad bank will not be competitive to attract investors at the moment to sell those assets. On the contrary, if the bad bank acquires the toxic assets below the fair value, it will represent a considerable loss for Spanish Banks that it will compromise even more their delicate financial position.

According to Mr. Luis de Guindos, Spanish Minister of Economy, the bad bank will acquire the toxic assets at a “conservative price” in order to be solvent and profitable over the next 15 years. Additionally, Mr de Guindos said that if this conservative price represents a loss for Spanish Banks, the government can compensate the with capital infusions. In my opinion it is better to have a clear legal and financial framework about the role of the bad bank and how is going to be managed in terms of incentives. If the incentive of the bad bank is to be as much profitable as possible, it will have the incentive to buy the assets below fair value, so it will induce more problem for the established banks as it was described above regardless the future compensation to the banks by the government. It is going to be quite difficult to know in the end how much money they are going to need as well as it can put Spain in an even more delicate position to the ECB if the plan does not have the expected results. On the other hand, if the unique incentive is to get rid of the assets in order to introduce dynamism in the Spanish economy, the bad bank will become the worst enemy for the established banks since the bad bank will sell their assets below the fair value with the consequent loss of competitiveness Spanish established banks.

As a conclusion the solution of the bad bank should be negotiated with the banks in order to find a common point of view about the negative incentives and implications for both actors: established banks and bad bank. Of course the bad bank has to be managed with an economic and profitable perspective but without their main objective that is to save the Spanish economy and avoid the collapse of the Spanish banking system.

Kiara Barrett 5 Octubre 2012 - 13:47

I agree with the other comments regarding focusing on root causes vs. symptoms. As part of the requirements of the bailout fund, Spain must set up such a fund to deal with the massive amounts of debt on their balance sheets. Unfortunately, as the Minister of Economy travels around to convince investors to support Spain, he’s having difficultly getting people on board. The only way that investors are going to be interested in the bad bank is if they get an even better bargain than is currenlty proposed. I’m not sure Spain has the ability to make the deal more attractive to investors making the idea of a bad bank not particularly successful.

Here’s another article talking about the situation.http://www.cnbc.com/id/49298978

Ahmed El Saadi 5 Octubre 2012 - 14:17

Bad banks are quick fixes to a structural problem. The bad banks success only depends on how much discount the bank investors will get in return for the assets acquired. What will make this deal fly is how much discount can be given on such assets and the bairgain will continue as it is much more attractive for the government to go for that solution than ask the EU / ECB to give out the Euros 50 Billion + at a higher interest rate. One thing to keep in mind is that every governments wants to have quick wins and doesn’t really provide a proper strategic plan for structural reforms in the country. Exact same scenario between Zapatero government Vs. Aznar regarding subsidization of sustainable projects.

Gerardo Rumie 5 Octubre 2012 - 16:46

I agree with most of the commentaries posted, bad banks are a rapid solution for the actual economic problem and the gain of depositor confidence. But the important thing to analyze is at what cost and who will assume that cost, Spain or other countries?
It is very important to decide until which extent are going to be permitted the losses regarding the sales of the bad assets, because if losses are not going to be accepted, the creation of a bad bank is going to be an unnecessary cost that instead of bringing a rapid solution, it will extend the problem. These assets should be offered at interesting prices to attract investors, otherwise it would have no effect.
Spain should focus on making an aggressive commercial plan of promoting those assets internally in Spain and externally with other countries in order to bring foreign investment and see rapid results. These should come in hand with commercial alliances with other countries where they can have some sort of benefits for investing in these assets, for instance discounts on annual tax payments.

Alberto Radice 5 Octubre 2012 - 21:09

I completely agree that creating a bad bank is a “break-down maintenance” of the Spanish banking system, rather than a preventive one. It is a very costly and risky action that doesn’t have a certainty of success. In addition to that, it could also potentially generate a sort of opportunistic behavior from the banks. Of course banks will prefer this solution (a subtraction from the asset side of their B/S) to the recapitalization (an addition to the liability & SE side of their B/S, thus potentially giving “management rights” to the government).
On the other hand, we need also to think that no other clear alternatives are available today. The “bad bank solution” has been already applied in the history with both positive and negative outcomes. To some extent, it is also how the Federal Reserve is acting like in the US (who owns of a fairly high amount of toxic assets – around $3.350 bn). A bad bank has the potential to stop the negative spiral of this crisis and could definitely boost back the ability of the credit institutions to provide loans to the good businesses and trigger back consumption. However, to make it work, as others pointed out above (and as the Spanish Ministry of Finance said), it is needed to fix the price of these assets at a reasonable discount in order to have the private investors gain from the bad bank and make this vehicle work.

Darcy 6 Octubre 2012 - 18:33

I believe that if Spain was independently struggling financially, than the other members of the EU would step in and perhaps take part of a “bad bank” system in order to alleviate some of the hardship currently being experienced in Spain. However, because the rest of the potentially involved countries are also in crisis of their own, this is no longer a feasible option. Bad banks also have negative consequences such as incentivizing people and businesses to file for bankruptcy as well as allowing banks to take more risks because they feel that they have the safety net of the bad banks. In theory bad banks should alleviate financial stresses, but in practicality the negative consequences can be more detrimental to the economy it was setup to help. The European countries would be willing to help Spain in other ways than the development of a “bad bank” (because it would be mutually beneficial to them), so more solutions must be created to try to assist in Spain’s downward spiraling financial situation.

Taka Kawasaki 9 Octubre 2012 - 10:45

In the short run, it would count a great deal. Now the most worst thing is bank run. Once bank run is caused, credit crisis would boost, which would end up triggering off bankruptcy of banks in Spain. It makes sense to use the aid from EU to avoid such a financial panic. It would be of help in halting the vicious cycle.

However, in the long run, it would not necessarily resolve the economic issues in Spain. The fundamental cause of the instability of Spain lies in productivity. Unlike Germany and France, Spain’s productivity level is low. After joined EU, Spain has been benefited from low interest rate of government bonds due to credibility of Germany (and France to some extent). Spain could borrow money at cheep cost and spent it to governmental spending, which boosted up economy in Spain. But productivity issue still remains. Looking it from different angle, the economy’s of Spain has been supported by other countries in EU. Hence, I think, without resolving the issue, the economy of Spain would not be recovered.

Domenico Agosti 10 Octubre 2012 - 00:52

In Switzerland, back in 2008, the Swiss government was one of the first governments which created a “bad bank” and bought the illiquid assets (approx. 60bn CHF) from the UBS bank. Without such action, the UBS bank most likely would have defaulted. Interestingly, today not many people talk about the “bad bank” – not even within Switzerland. I cannot tell why, but I suspect the story wouldn’t fit with the general picture of public regarding “bad banks”. The newly created “bad bank” with the former assets of the UBS is actually turning into a cash-machine as all the illiquid assets suddenly become tradable again and therefore can be valued at their right price.

Now my message is that some assets which appear now to be invaluable can become valuable again in the foreseen future. The problem for private firms/ banks is that this “foreseen future” is in a too far distance. But a public entity, such as a “bad bank”, might have the time to wait until the assets become valuable again. Thus, in my view, the governments now should buy these assets at prices which allow the banks to survive and then keep the assets until they become valuable again. In the long-run this will create, similar to the UBS/ Switzerland case, a win-win situation: The banks can survive by selling their assets, and the government can make a healthy profit in the long-run on these assets and ideally share it with the public.

Obviously it’s not as easy as described above, as the government has to implement changes in order to prevent a financial crisis 2.0. Furthermore, as Taka already mentioned, it’s also a confidence crisis and thus even the governments currently struggle to keep illiquid assets on their balance sheets.

Juan Zapata 11 Octubre 2012 - 00:39

The creation of a bad bank in Span is a solution that has been in the air for quite a long time, so I have had the opportunity to hear and read many opinions on it. I tend to agree with the economist Juan Ramón Rallo. Prof. Rallo is a convinced economic liberal, professor in Universidad Rey Juan Carlos and founder and director of the “think tank” Instituto Juan de Mariana. He has opposed openly to the creation of such a bad bank.

It is necessary to understand that the creation of a bad bank means to rescue banks with the money of tax payers. The toxic elements hold by the Spanish banks are more than likely to result in important losses. But the taxpayers should not be financing those losses; rather the creditors should bear the loss. Private creditors need to assume their part of responsibility when they were financing Spanish banks, including German banks now pushing for the creation of a bad bank to transfer their risk to the Spanish taxpayer.

Therefore, I would rather support some of the alternatives proposed by Prof. Rallo, including the renegotiation of the current obligations with their creditors, wither by refinancing it or accepting deductions. Another option proposed by prof. rallo is the transformation of debt into shares of the bank. Of course he proposes to do so regarding the preference of different type of debts, so that subordinate debts which were assuming a high risk for a high return would convert completely. But bank deposits should not be completely converted as these operations were not assuming any willing risk, therefore he proposes a 5% of conversion.

You can read more from Prof. Rallo in the following link: http://juanramonrallo.com/

Chad 11 Octubre 2012 - 11:18

As to whether or not other European countries are willing to pay for Spanish losses, it is still not entirely clear. Several economically sound EU countries have pledged to cooperate in the creation of a rescue fund to help out the failing ones, such as Spain. Recently a few countries, most importantly Germany, have started backsliding in the commitments made as they are concerned about Moral Hazard. They are becoming reluctant to follow through with promises made as they want greater guarantees the rescue funds will not deter the necessary political and structural reforms necessary to ensure such scenarios do not play out in the future.

However, recent capital flight from Spanish bank deposits totaling over 70B euros in July indicate just how precarious the situation is right now and that time is of the essence. The ECB has pledged to do its part by buying Spanish government debt in order to narrow the spread on Spanish versus German bonds, but this alone will not be enough. It seems that the stronger Eurozone countries will have to help bail out their financially troubled neighbors whether they like it or not. And they need to act sooner rather than later or further drops in bank deposits in Spain will push the unsound banks into insolvency potentially threatening the future of the euro.

Jason Curtis 11 Octubre 2012 - 11:19

A Bank Bank solution will mean the following.

-Access to additional funding other than that of the European Central bank.
-May lead to additional bailouts from EU.
-Slows the bad loans default pressure by slowing down the process so all bad loans don’t all go bad at once, which would result in a much greater weakening of the economy.(Preventing losses over lifetime)
-Minimizes impact on taxpayers
-May slow down the erosion of investor confidence that has occurred this year.
-Securities such as preference shares will be impacted.
-May help stabilize the value of the Euro reducing immediate volatility.

-Spain will retain a costly rate of borrowing money.
-Economy is shrinking as jobless numbers exceed 25%, reducing available tax dollars now and into the future.
-May result in more banks getting rid of more bad-debt than expected.

Raimundo Abando 11 Octubre 2012 - 11:48

Firts, as many people have mentioned already, a bad bank is necessary in Spain. Spanish banks have such a big amount of toxic assets that the best way to get them out of the bank’s balance sheet is through a bad bank that will absorb all those assets. Some economists have argued that there are alternatives to the creation of a bad bank, and there are even political parties, like IU in Spain, that want banks to go bankrupt so the Government can nationalize them afterwards. From my point of view those kind of measures are populist, their only goal is to win votes. A bad bank, although as Juan has said it will afect spanish tax payers, is key in order to solve the situation of all those institutions such as Bankia, Banco Popular, Caixa Catalunya, etc.

In my opinion, and leaving aside the problem of the bad bank, Spain has a bigger problem: public deficit. S&P downgraded our rating to BBB-, and they estimate that the country’s debt to GDP will be over 100% before 2014. There are those that say that this situation will be solve with the economic rescue from the EU, but if the actual Government is not able to cut the cost of the public institutions of our country I am pretty sure that this situation will be repeated in the future. Spanish regional model (sistema de las autonomías), which was established back in 1975, is no longer suitable since the amount of public deficit that generates is impossible to maintain in the long term even with the financial aid of the EU. It is true that the bad bank is a problem to be solve in the short term, but the public deficit of the country is, from my point of view, something that politicians should solve as soon as possible in order to reduce our public debt instead of just raising taxes to spanish citizens.

Juhan Lee 11 Octubre 2012 - 12:08

I think the establishment of bad bank scenario of Spain can be a fundamental action at the moment. However, the specific scheme and pricing plan are still in doubt. It’s more important to know which assets they would buy from which banks and how to evaluate and discount the value of assets. In Ireland, for example, National Asset Management Agency (bad bank) was established in 2009, and took over the commercial property assets by a discounted price, which resulted in a big loss from evaluation. Accordingly, a huge amount of public funds were needed again.
Recent news reported that the soured assets of the banks in Spain were estimated 200 billion euro and foreign investors have withdrawn another 220 billion just in first half of this year. If the government decides to apply too low discount to the assets it’s hard to find the investors and this will force the government need to spend more public money like Ireland. Otherwise, the high discount rate will make further losses of the banks.
The bad bank itself can be a positive way to reduce the risk of credit crunch in Spain, but the detail structuring and realistic strategy to mitigate the risk are required as S&P has lowered the rating on Spain’s debts to BBB- (close to junk bond).

Rachel Stern 11 Octubre 2012 - 12:26

I agree with the skeptics in the class regarding the effectiveness of a bad bank in Spain. Specifically there is little assurance that the prices will be competitive. Data suggests that Spanish property prices have fallen anywhere from 32% to 53% from the peak in 2007 (and they have fallen 20% in the last year). The government indices are not representing this level of decline so skeptics wonder what will be used to determine the bad banks competitive prices. If the competitive prices are too high then the bad bank would essentially be holding toxic assets that they would be unable to sell. This would in effect leave the bank impractical and dissatisfy any foreign EU investors.

However, a larger question is how this blog post and Spain’s economic issues actually relate to our class, International Expansion of a Company. The current situation clearly increases risk of investing in Spain, and those companies looking to expand are turning away from Spain. Specifically, Coface an indicator of country risks, highlights Spain’s high unemployment rate, loss of productivity, increase in public debt, heavy private debt burden, and weakened banks as all risks for potential investors. Not only are foreigners deterring investment into Spain, but also Spanish companies are looking abroad to new and stronger markets with increasing demand to help mitigate these domestic risks. The resulting decreased capital inflows and increased outflows due to country risk can have a detrimental impact on Spain’s economy over the long-run.

Daniel Lavi 14 Octubre 2012 - 22:10

This brings up a classic case of game theory. There are countless game theorists playing out potential outcomes of the bailouts. (http://www.gametheorystrategies.com/2012/06/14/spains-euro-bailout/).

But in particular it is explained by the “Dollar Auction” or “War of Attrition”. A great read is the article on applying Kipling’s wisdom to the Greek Crisis http://www.greekcrisis.net/2011/07/kiplings-game-theory-lessons-for-greece.html
This can be easily substituted for the situation in Spain.

Each party stands to lose from the collapse, but at the same time each party wishes to have someone else shoulder the grunt, so that they themselves can shirk, while still reaping the benefits. All parties stand to lose if now one helps, but every party loses in helping, so they prefer someone else do the work (in hopes that it is enough, and that they can get out of not having to do the grunt work themselves.)

At this point in the game the parties are to interdependent to be able to afford the possibility of shirking and failing. It seems as though the bad bank is necessary for survival of the greater common.

Ignacio Domecq 15 Octubre 2012 - 14:13

It is clear that the bad bank is not a solution for the structural problems that are affecting the Spanish economy. It is clear also, that it is dangerous not to blame those who caused the problem, or at least part of the problem. However, it is urgent to implement some measures which could contribute to reactivate the Spanish economy in the short run. And this should be done independently of the implementation of important structural measures. The main objective needs to be the reactivation of the Spanish economy, and in order to reactivate the economy, the money needs to flow again from banks and financial institutions to the real economy, which is the families and the companies. Lending money to the banks is not enough to achieve this goal, because banks are not leaking that money into the economy, they are using it to increase their provisions, because they have too many toxic assets in their balance sheets. Consequently the creation of a bad bank could be a good measure, which would not solve the problems in the Spanish economy, but which could at least contribute to mitigate the impact that the economic crises in causing to the families and in the markets and could contribute to reestablish the economic activity needed to get out of the vicious spiral of the economy. The introduction of the bad bank, if properly implemented, could improve the situation of current banks and consequently their ability to lend money to the economy. Also it could facilitate the faster adaptation of the real estate market to the real situation, and facilitate the access of the housing stock to the market. However, if the bad bank wants to improve the economic situation it is key to be carefully planned and clarified by the authorities how the prices of the toxic assets are going to be fixed. Otherwise, if prices are fixed above or below real market value, it could have several implications which could eliminate the positive impact potentially caused by the introduction of the bad bank as has previously been explained by Jose Manuel Izquierdo.

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Contact: … bgsblc.syed@gmail.com
Skype ID: bgsblc.syed

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