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

Hauck, A ORCID: https://orcid.org/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:	Number Type 10.1016/j.qref.2014.10.002 DOI S1062976914000817 Publisher Item Identifier
Divisions:	Schools > Nottingham Business School
Record created by:	Jonathan Gallacher
Date Added:	06 Feb 2019 15:15
Last Modified:	06 Feb 2019 15:15
URI:	https://irep.ntu.ac.uk/id/eprint/35776

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