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Bad Bank

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DEFINITION OF 'BAD BANK'

A bank set up to buy the bad loans of a bank with significant nonperforming assets at market
price. By transferring the bad assets of an institution to the bad bank, the banks clear their
balance sheet of toxic assets but would be forced to take write downs. Shareholders and
bondholders stand to lose money from this solution (but not depositors). Banks that become
insolvent as a result of the process can be recapitalized, nationalized or liquidated.

BREAKING DOWN 'BAD BANK'

A well-known example of a bad bank was Grant Street National Bank, which was created in
1988 to house the bad assets of Mellon Bank. The financial crisis of 2008 revived interest in
the bad bank solution, as managers at some of the world's largest institutions contemplated
segregating their nonperforming assets into bad banks.
Federal Reserve Bank Chairman Ben Bernanke proposed the idea of using a government-run
bad bank in the recession following the subprime mortgage meltdown in order to clean up
private banks with high levels of problematic assets and allow them to start lending again. An
alternate strategy considered was a guaranteed insurance plan that would keep the toxic
assets on the banks' books but eliminate the banks' risk and pass the risk on to taxpayers.
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INSURANCE

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INVESTING BASICS

Understanding the Inverted Yield Curve

An inverted yield curve occurs during the rare times when short-term
interest rates are higher than long-term interest rates.

ECONOMICS

What is a Loan Loss Provision?

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Banks set aside loan loss provisions to cover losses from bad loans.

MUTUAL FUNDS & ETFS

ETF Analysis: SPDR S&P Regional Banking

Learn about the SPDR S&P Regional Banking Fund, an exchange-traded
fund (ETF) that invests in equities of regional banks located in the United
States.

MUTUAL FUNDS & ETFS

ETF Analysis: SPDR S&P Bank

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the banking sector and how investors can benefit from this ETF.

STOCK ANALYSIS

Who Are Wells Fargos Main Competitors?

Explore information on the main competitors of Wells Fargo, the other
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STOCK ANALYSIS

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Citigroup, the three banks considered the main competitors to Bank of
America.

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