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Bad banks: The case of Germany

Author

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  • Ilgmann, Cordelius
  • van Suntum, Ulrich

Abstract

This paper discusses the instrument of equalisation claims, which has successfully been used in two previous German debt crises as a method for stabilizing the balance sheets of financial institutions. A modern version of this method would swap temporarily illiquid assets for government bonds with open maturit , in order to avoid the problem of evaluating the toxic assets in advance. Not only will this method save taxpayers' money, but it also upholds the market principle of liability, thereby avoiding incentives for inefficient risk-prone behaviour in the financial sector. The current German bad bank approach principally follows this approach, but severely suffers from unnecessary complexity and voluntary participation.

Suggested Citation

  • Ilgmann, Cordelius & van Suntum, Ulrich, 2009. "Bad banks: The case of Germany," CAWM Discussion Papers 22, University of Münster, Münster Center for Economic Policy (MEP).
    • Handle: RePEc:zbw:cawmdp:22
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    References listed on IDEAS

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    1. Reinhart, Carmen & Felton, Andrew, 2008. "The First Global Financial Crisis of the 21st Century," MPRA Paper 11862, University Library of Munich, Germany.
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    Cited by:

    1. Tanja Markovic-Hribernik & Matej Tomec, 2015. "Bad Bank And Other Possible Banks’ Rescuing Models – The Case Of Slovenia," Annals - Economy Series, Constantin Brancusi University, Faculty of Economics, vol. 1, pages 128-141, January.

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    Keywords

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    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G01 - Financial Economics - - General - - - Financial Crises
    • N24 - Economic History - - Financial Markets and Institutions - - - Europe: 1913-

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