The Use of Asset Management Companies in the Resolution of Banking Crises : Cross-Country Experience
Asset management companies have been used to address the overhang of bad debt in the financial system. There are two main types of asset management company: those set up to expedite corporate restructuring and those established for rapid disposal o...
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| Format: | Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2015
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| Online Access: | http://documents.worldbank.org/curated/en/2000/02/438381/use-asset-management-companies-resolution-banking-crises-cross-country-experience http://hdl.handle.net/10986/22336 |
| Summary: | Asset management companies have been
used to address the overhang of bad debt in the financial
system. There are two main types of asset management
company: those set up to expedite corporate restructuring
and those established for rapid disposal of assets. A review
of seven asset management companies reveals a mixed record.
In two of three cases, asset management companies for
corporate restructuring did not achieve their narrow goal of
expediting bank or corporate restructuring, suggesting that
they are not good vehicles for expediting corporate
restructuring. Only a Swedish asset management company
successfully managed its portfolio, acting sometimes as lead
agent in restructuring - and helped by the fact that the
assets acquired had mostly to do with real estate, not
manufacturing, which is harder to restructure, and
represented a small fraction of the banking systems assets,
which made it easier for the company to remain independent
of political pressures and to sell assets back to the
private sector. Asset management companies used to dispose
of assets rapidly fared somewhat better. Two of four
agencies (in Spain and the United States) achieved their
objectives, suggesting that asset management companies can
be used effectively for narrowly defined purposes of
resolving insolvent and inviable financial institutions and
selling off their assets. Achieving these objectives
required an easily liquefiable asset - real estate - mostly
professional management, political independence, adequate
bankruptcy and foreclosure laws, appropriate funding,
skilled resources, good information and management systems,
and transparent operations and processes. The other two
agencies (in Mexico and the Philippines) were doomed from
the start, as governments transferred to them politically
motivated loans or fraudulent assets, which were difficult
for a government agency susceptible to political pressure
and lacking independence to resolve or sell off. |
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