# Bad bank problem, fundamental (fundamental problem of a bad bank)

- Canonical URL: https://www.gerhardmerk.de/bad-bank-problem-fundamental-fundamental-problem-of-a-bad-bank
- Post ID: 592329
- Modified: 2023-07-25T20:59:42+00:00
- Language: en

## Definition

Any bad bank consideration faces two opposing circumstances. - On the one hand, banks' balance sheets are to be relieved of securities for which - at least temporarily - there is no functioning market, and - for which there is a threat of substantial book losses, because the value adjustments affect the banks' equity capital and thus also reduce their ability to grant loans. - On the other hand, however, - the owners of the banks should not be released from liability for a business policy that has caused this distress; because - this would create a moral hazard problem: losses would be passed on to the state or the taxpayers. - The German bad bank model attempts to strike a balance between these two interests. - See investment liability, bank, systemic, bad bank, bail-in, equity, hard, Financial Market Stabilization Act, mandatory convertible bond, loss-sharing scheme, confidence bubble, mandatory convertible bond. Attention: The financial encyclopedia is protected by copyright and may only be used for private purposes without express consent! University Professor Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec. Professor Dr. Eckehard Krah, Dipl.rer.pol. E-mail address: info@ekrah.com https://de.wikipedia.org/wiki/Gerhard_Ernst_Merk https://www.jung-stilling-gesellschaft.de/merk/ https://www.gerhardmerk.de/

## Machine-readable

- Generator: Merk Knowledge 1.1.1