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The use of asset management companies in the resolution of banking crises - cross-country experience

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  • Klingebiel, Daniela
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    Abstract

    Asset management companies have been used to address the overhang of bad debt in the financial system. There are two main types of asset management company: those set up to expedite corporate restructuring and those established for rapid disposal of assets. A review of seven asset management companies reveals a mixed record. In two of three cases, asset management companies for corporate restructuring did not achieve their narrow goal of expediting bank or corporate restructuring, suggesting that they are not good vehicles for expediting corporate restructuring. Only a Swedish asset management company successfully managed its portfolio, acting sometimes as lead agent in restructuring - and helped by the fact that the assets acquired had mostly to do with real estate, not manufacturing, which is harder to restructure, and represented a small fraction of the banking system's assets, which made it easier for the company to remain independent of political pressures and to sell assets back to the private sector. Asset management companies used to dispose of assets, rapidly fared somewhat better. Two of four agencies (in Spain and the United States) achieved their objectives, suggesting that asset management companies can be used effectively for narrowly defined purposes of resolving insolvent and inviable financial institutions, and selling off their assets. Achieving these objectives required an easily liquefiable asset - real estate - mostly professional management, political independence, adequate bankruptcy, and foreclosure laws, appropriate funding, skilled resources, good information and management systems, and transparent operations and processes. The other two agencies (in Mexico and the Philippines) were doomed from the start, as governments transferred to them politically motivated loans or fraudulent assets, which were difficult for a government agency susceptible to political pressure and lacking independence to resolve or sell off.

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    Bibliographic Info

    Paper provided by The World Bank in its series Policy Research Working Paper Series with number 2284.

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    Date of creation: 29 Feb 2000
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    Handle: RePEc:wbk:wbrwps:2284

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    Keywords: Banks&Banking Reform; International Terrorism&Counterterrorism; Financial Crisis Management&Restructuring; Payment Systems&Infrastructure; Municipal Financial Management; Financial Crisis Management&Restructuring; International Terrorism&Counterterrorism; Municipal Financial Management; Financial Intermediation; Banks&Banking Reform;

    References

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    1. Ceyla Pazarbasioglu & Claudia Helene Dziobek, 1997. "Lessons From Systemic Bank Restructuring," IMF Working Papers 97/161, International Monetary Fund.
    2. Burkhard Drees & Ceyla Pazarbasioglu, 1995. "The Nordic Banking Crises," IMF Working Papers 95/61, International Monetary Fund.
    3. Barnes, Guillermo, 1992. "Lessons from bank privatization in Mexico," Policy Research Working Paper Series 1027, The World Bank.
    4. James Daniel, 1997. "Fiscal Aspects of Bank Restructuring," IMF Working Papers 97/52, International Monetary Fund.
    5. Takeo Hoshi & Anil Kashyap, 2000. "The Japanese Banking Crisis: Where Did It Come From and How Will It End?," NBER Chapters, in: NBER Macroeconomics Annual 1999, Volume 14, pages 129-212 National Bureau of Economic Research, Inc.
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    Cited by:
    1. Gary Gorton & Lixin Huang, 2002. "Liquidity, Efficiency and Bank Bailouts," Center for Financial Institutions Working Papers, Wharton School Center for Financial Institutions, University of Pennsylvania 02-33, Wharton School Center for Financial Institutions, University of Pennsylvania.
    2. repec:phd:rpseri:rps_2005-01 is not listed on IDEAS
    3. Hryckiewicz, Aneta, 2014. "The problem with government interventions: The wrong banks, inadequate strategies, or ineffective measures?," MPRA Paper 56730, University Library of Munich, Germany.
    4. Calomiris, Charles W & Klingebiel, Daniela & Laeven, Luc, 2004. "A taxonomy of financial crisis resolution mechanisms : cross-country experience," Policy Research Working Paper Series 3379, The World Bank.
    5. Marina Halac & Sergio Schmukler, 2003. "Distributional effects of crises : the role of financial transfers," Policy Research Working Paper Series 3173, The World Bank.
    6. Kane, Edward J. & Klingebiel, Daniela, 2004. "Alternatives to blanket guarantees for containing a systemic crisis," Journal of Financial Stability, Elsevier, Elsevier, vol. 1(1), pages 31-63, September.
    7. Dado, Marinela E. & Klingebiel, Daniela, 2002. "Decentralized credtor-led corporate restructuring - cross-country experience," Policy Research Working Paper Series 2901, The World Bank.
    8. Independent Evaluation Group, 2006. "IEG Review of World Bank Assistance for Financial Sector Reform," World Bank Publications, The World Bank, number 7055, August.
    9. Stijn Claesens & Simeon Djankov & Ashoka Mody, 2001. "Resolution of Financial Distress : An International Perspective on the Design of Bankruptcy Laws," World Bank Publications, The World Bank, number 14029, August.
    10. Jan Cimburek & Miroslav Kollár & Lubos Komárek & Pavel Rezábek, 2009. "Resolving Nonperforming Assets in the Czech Republic: Theory and Practice," CESifo DICE Report, Ifo Institute for Economic Research at the University of Munich, Ifo Institute for Economic Research at the University of Munich, vol. 7(3), pages 21-28, October.

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