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Bad Banks: The Case of Germany

Author

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  • Cordelius Ilgmann
  • Ulrich van Suntum

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

  • Cordelius Ilgmann & Ulrich van Suntum, "undated". "Bad Banks: The Case of Germany," Working Papers 200110, Institute of Spatial and Housing Economics, Munster Universitary.
    • Handle: RePEc:muc:wpaper:200110
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    File URL: http://www.wiwi.uni-muenster.de/cawm/forschen/Download/Diskbeitraege/DP_22-Ilgmann-Van-Suntum-Bad-banks.pdf
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    References listed on IDEAS

    as
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    8. James Crotty, 2009. "Structural causes of the global financial crisis: a critical assessment of the 'new financial architecture'," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 33(4), pages 563-580, July.
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    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Malte Tobias Kähler, 2011. "From German Rules to European Discretion: Policy’s Slippery Slope," Chapters, in: David Howden (ed.), Institutions in Crisis, chapter 9, Edward Elgar Publishing.
    2. 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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    More about this item

    Keywords

    Financial Crisis; Bad Banks; German History; equalisation claims;
    All these keywords.

    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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