Reestablishing stability and avoiding a credit crunch: comparing different bad bank schemes

Hauck, A. ORCID: 0000-0002-6949-6732, Neyer, U. and Vieten, T., 2015. Reestablishing stability and avoiding a credit crunch: comparing different bad bank schemes. The Quarterly Review of Economics and Finance, 57, pp. 116-128. ISSN 1062-9769

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Abstract

This paper develops a model to analyze two different bad bank schemes, an outright sale of toxic assets to a state-owned bad bank and a repurchase agreement between the bad bank and the initial bank. For both schemes, we derive a critical transfer payment that induces a bank manager to participate. Participation improves the bank's solvency and enables the bank to grant new loans. Therefore, both schemes can reestablish stability and avoid a credit crunch. An outright sale will be less costly to taxpayers than a repurchase agreement if the transfer payment is sufficiently low.

Item Type: Journal article
Publication Title: The Quarterly Review of Economics and Finance
Creators: Hauck, A., Neyer, U. and Vieten, T.
Publisher: Elsevier
Date: 2015
Volume: 57
ISSN: 1062-9769
Identifiers:
NumberType
10.1016/j.qref.2014.10.002DOI
S1062976914000817Publisher Item Identifier
Divisions: Schools > Nottingham Business School
Depositing User: Jonathan Gallacher
Date Added: 06 Feb 2019 15:15
Last Modified: 06 Feb 2019 15:15
URI: http://irep.ntu.ac.uk/id/eprint/35776

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