Bad bank

bad spanish bank1#. What is a bad bank?

We take as a financial definition what a bad bank is :

A bad bank is that entity or financial institution that is in charge of transferring the toxic assets of the banking entities , which includes those investment funds with terrible conditions and that were created from mortgages or credits to people with little financial solvency , to a Public Agency that would be in charge of settling the payments. "

In summary, the State will be in charge of buying all the credits that they are not profitable for the bank that sells them, that is, what we lately know as toxic. This purchase is made at a price that in theory is between the market value (if it is toxic it is imagined that it is very low) and the book value of the asset, which if it is sold, we will imagine that it is high.

If this is transferred to a private company, imagine that you call the State to buy the merchandise that you have bought at a price and due to market reasons you cannot earn the percentage that you had budgeted for. The State would be forced to value this merchandise between the purchase price and the current price, and deal with this debt . Come on, for some entrepreneurs it would be a bargain, right? , “The bank always wins”.

As always, the main affected by the creation of a bad bank are the taxpayers of the State that takes care of the losses of poor bank management. The rejection of the citizens is evident, although the objective of creating a bad bank is to protect the banking sector, who protects taxpayers?

Now that we know what “Bad Bank” means, we are going to explain the theoretical version of its mission : to improve the economic situation , since when the affected banks get rid of all the toxic credits they would have liquidity and could invest in new credits to solvent people , and in this way businesses and consumption would be promoted.


2#. Is there currently a bad bank in Spain?

During the summer of 2011, La Caixa, due to economic problems , decided to reorganize and reactivate CaixaBank , free of toxic assets that passed to a new entity, known as Criteria CaixaCorp 2.0 real estate , which thus established itself as the first bank bad of Spain and that has a book value of more than 10 billion euros.

In this way, Criteria CaixaCorp 2.0 real estate has become a holding company of companies from all types of sectors , where important groups such as Gas Natural, Repsol, Telefónica or Port Aventura stand out , who assume the toxic assets, at a cheaper price than that of the market, and in this way they hope to recover the investment once the current economic crisis is over. Unlike the concept of Banco Malo at the state level, this group continues to belong to “La Caixa”, while the investors are companies or private groups instead of the State.