Lehman's debt would also have to be split among the good and bad banks, says CreditSights Analyst David Hendler.
Bad banks in Britain and America turned good because they could borrow cheaply.
ECONOMIST: ��Bad banks�� seldom turn a profit but are still useful
Some other banks are creating "bad banks, " or separate work-out funds, and moving distressed holdings off their balance sheets quickly.
This week's German plan to set up several bad banks was no more than a down payment on the restructuring ahead.
One is that the gap between good and bad banks will widen further as funds are pulled away from weaker institutions.
Last is the lesson from Sweden and the RTC, that bad banks may be judged successful even if they incur large losses.
ECONOMIST: ��Bad banks�� seldom turn a profit but are still useful
Large depositors in Laiki Bank, which is being broken into good and bad banks, are likely to see nearly all of their assets written off.
Not all banks are bad banks, as you know, and as a community bank that's been around for 85 years, we haven't even taken TARP money.
Buyers also are hoping to see more sales this year by the so-called bad banks being formed by national governments primarily to dispose of distressed real estate.
WSJ: Sales Pace Picks Up for Troubled European Property Assets
For its cheerleaders, such as Paul Krugman, an American Nobel laureate in economics, Iceland is a model for another north Atlantic island ruined by bad banks: Ireland.
One of the ways the bad banks get involved is by stepping in before a developer defaults, effectively taking over the trust loan, albeit with higher returns and a longer life.
The Nigerian government is treading a well worn path, with many governments having set up similar government-backed "bad" banks to help clean up their banking systems.
But the second problem is that doubts about the bad debts banks may have on their own books have caused their own financing costs to rise.
This will inevitably mean bad news for the banks when some of these loans eventually turn bad.
South Korea and Sweden owed their relatively robust recoveries to policies to remove bad loans from banks' balance-sheets.
This is obviously bad news for banks, as it points to lower interest incomes over subsequent quarters too.
Longtime critics of the agency, including some lawmakers, said the mess is the latest example of the OCC overindulging bad behavior by banks.
After all, it has been made clear to them that the Fed and Treasury stand ready to bail out banks bad assets at any cost.
By having governments take over bad loans, banks could be sold at more realistic prices to foreigners, if they so desired, as many would.
The government's creation of a mechanism to take on bad assets from banks and other financial institutions has stopped a catastrophic meltdown of the system.
Since Sept. 11 the feds have introduced new laws and tightened up old regulations to shift some of the onus for catching bad guys onto banks.
This is especially bad news for banks because a major source of profits for money-center banks is the ability to borrow money at short-term rates and lend at long-term rates.
Moreover, while both sides are fighting over the details, they ultimately have the same goal: removing bad assets from banks' balance sheets in an effort to help restore confidence to credit markets.
Taking in the good and the bad about these banks, she says removing these toxic assets will easily be a five- to 10-year process, because of the illiquid nature of real estate.
But the basic point of the FT article still stands: the PPI scandal might be bad for the banks' reputation, and their balance sheets, but it is now putting money in people's pockets at a very useful time.
So the wise men have tried to elevate the tone by analysing the euro crisis as three interlocking problems: first, the national debts of member countries, next the bad debts of banks, and last the broader macroeconomic gloom.
Europe has hesitated more than the United States to subject its banks to measures like stress tests because of an entrenched belief that it would be better to wait for the market to recover and for the bad assets that banks still hold to pick up on value.
This centralized bad bank would take the FDIC off the hook for a lot of banks' bad loans.
The housing market crashed, banks went bad and the government will save the day.
Meanwhile the remarkably low levels of bad debts that the banks have enjoyed seem unsustainable.
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