The use of asset management companies in the resolution of banking crises - cross-country experience

By D. Klingebiel. 2000

199 citations recorded by the source corpus.

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 system's 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.

Subfields: Accounting, Finance

View Paper: https://www.semanticscholar.org/paper/f015a2634df7ae573448857cd0f14458fd2c8b3c

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In Accounting

1. J. Bonin
2. Allen G. Schick
3. Yiping Huang
4. H. Brixi

In Finance

1. J. Bonin
2. Allen G. Schick
3. Yiping Huang
4. H. Brixi

Citations in the corpus

• How good is the market at assessing bank fragility? A horse race between different indicators (2002, unknown): “The large number of banking crises which have hit developed and developing countries in the last decades (Caprio, 1999) and the high cost of their resolution (Honohan and Klingebiel, 2000) have prompted a renewed interest in the features * Corresponding author.”
• Dealing with the Bad Loans of the Chinese Banks (2001, background): “According to Klingebiel (1999), several unfavorable factors influenced the RTC’s operations.”
• Controlling fiscal costs of banking crises (2000, unknown): “By one count, 112 episodes of systemic banking crises occurred in 93 countries since the late 1970s and 51 borderline crises were recorded in 46 countries (Caprio, Klingebiel 1999).”
• Systemic Banking Crises: A New Database (2008, unknown): “The effectiveness of government-run AMCs has been quite mixed: better where the assets to be disposed have been primarily real estate, less good where loans to large politically-connected firms dominated (Klingebiel, 2000).”
• Government at Risk (2002, background): “Often asset and management companies are created for the sole purpose of raising revenues to recapitalize banks outside the budgetary framework of the government (Klingebiel 2000).”