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|World & Business - Finance|
|Monday, 06 August 2012 14:56|
The People's Government has announced the arrival of 'Bad Bank'. Luis de Guindos will create a 'bad bank' to be transferred to doubtful assets, primarily the real estate, entities that receive aid.
But what is the bad bank? Formally, it is a financial institution that takes care of transferring the toxic assets of banks, which include those investment funds and poor conditions that were created from mortgages or loans to people with little economic solvency, a public body would be responsible for settling payments.
That is, the state will take care of all those false steps taken in the Spanish banks that blew the housing bubble. In short, the state buys those credits with a high probability of being very profitable for the bank, and does so at a price that would be between market value and book value of assets.
The mission of this type of banks, and as we have advanced above, is to improve the economic situation, if the banks rid themselves of all those toxic loans dispondrían liquidity, in turn, presumably would invest in new loans to creditworthy people, especially entrepreneurs, and thus enhance the companies would be achieved with a consequent possible decrease in unemployment, one of the major problems existing in Spain.
This is the theory, we'll see from Aug. 24 when this measure is put in place what will happen if more solvent banks actually invested in companies and whether there will be a decline in unemployment, and as intended.