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

  • Klingebiel, Daniela
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    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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    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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    1. Barnes, Guillermo, 1992. "Lessons from bank privatization in Mexico," Policy Research Working Paper Series 1027, The World Bank.
    2. Takeo Hoshi & Anil Kashyap, 1999. "The Japanese Banking Crisis: Where Did It Come From and How Will It End?," NBER Working Papers 7250, National Bureau of Economic Research, Inc.
    3. Burkhard Drees & Ceyla Pazarbasioglu, 1998. "The Nordic Banking Crisis: Pitfalls in Financial Liberalization: Pitfalls in Financial Liberalization," IMF Occasional Papers 161, International Monetary Fund.
    4. James Daniel, 1997. "Fiscal Aspects of Bank Restructuring," IMF Working Papers 97/52, International Monetary Fund.
    5. Ceyla Pazarbasioglu & Claudia Helene Dziobek, 1997. "Lessons From Systemic Bank Restructuring: A Survey of 24 Countries," IMF Working Papers 97/161, International Monetary Fund.
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