{"id":12709,"date":"2015-10-30T16:27:18","date_gmt":"2015-10-30T20:27:18","guid":{"rendered":"http:\/\/multiplier-effect.org\/?p=12709"},"modified":"2015-10-30T16:33:41","modified_gmt":"2015-10-30T20:33:41","slug":"is-a-bad-bank-model-the-solution-to-greeces-credit-crunch","status":"publish","type":"post","link":"https:\/\/blogs.bard.edu\/multiplier-effect\/is-a-bad-bank-model-the-solution-to-greeces-credit-crunch\/","title":{"rendered":"Is a “Bad Bank” Model the Solution to Greece’s Credit Crunch?"},"content":{"rendered":"

Dimitri Papadimitriou and new Levy Institute Research Associate\u00a0Emilios Avgouleas write about one of the obstacles to recovery of the Greek economy: the absence of credit expansion in connection with still-troubled Greek banks.<\/p>\n

Beyond deposit flight and\u00a0the ongoing recession, Papadimitriou and Avgouleas argue that\u00a0the botched recapitalization of Greek banks\u00a0can also be blamed for the\u00a0failure to alleviate this liquidity crunch. As the next round\u00a0approaches, they\u00a0warn that past recapitalization efforts did not follow internationally-tested best practices:<\/p>\n

The decision by creditors to\u00a0allow the old, now minority, shareholders and incumbent management\u00a0to retain effective control of Greek banks is highly\u00a0questionable. This rather unusual governance approach in a\u00a0post-rescue period meant that the Greek banking system did\u00a0not benefit from any cleanup efforts, especially in light of the\u00a0interlocking and privileged relationships some bankers enjoy\u00a0with Greek political, media, and economic interests.<\/p><\/blockquote>\n

In addition, they stress that effective recapitalization requires\u00a0some attempt to restructure loan portfolios: an attempt to deal with the significant — and still growing —\u00a0share\u00a0of loans falling into the “nonperforming” category (NPLs). This chart showing the growth of NPLs (from a strategic analysis<\/a> by Papadimitriou, Michalis Nikiforos, and Gennaro Zezza),\u00a0gives you a sense\u00a0of the\u00a0debt-deflation trap in which Greece is stuck:<\/p>\n

\"Greece_Nonperforming<\/a><\/p>\n

In order to clear the way for Greek banks to return to making loans, Avgouleas and Papadimitriou propose the creation of a “bad bank”\u00a0that would take on the NPLs, with government guarantees currently extended to Greek banks withdrawn and applied instead to the bad bank fund.<\/p>\n

Under this scheme, Greek borrowers would be offered an effective\u00a0way to restructure their borderline loans while banks could\u00a0avoid writing off all NPLs, with significant consequences for\u00a0their balance sheets, and instead have the loans objectively valued\u00a0and transferred to the bad bank. In addition, creditors\u00a0would not have to face an unduly inflated Greek bank rescue bill,\u00a0and the investment that Greek taxpayers have made and will\u00a0make in the banking sector would not be entirely wiped out.\u00a0Sound bank recapitalization with concurrent avoidance of\u00a0any creditor bail-in\u2014which under the current circumstances\u00a0would prove catastrophic\u2014and implementation of robust and sensible corporate governance changes could help the Greek\u00a0banking sector return to financial health.<\/p><\/blockquote>\n

The complete analysis can be found in\u00a0their newly released\u00a0policy note<\/a>\u00a0(pdf).<\/p>\n","protected":false},"excerpt":{"rendered":"

Dimitri Papadimitriou and new Levy Institute Research Associate\u00a0Emilios Avgouleas write about one of the obstacles to recovery of the Greek economy: the absence of credit expansion in connection with still-troubled Greek banks. Beyond deposit flight and\u00a0the ongoing recession, Papadimitriou and Avgouleas argue that\u00a0the botched recapitalization of Greek banks\u00a0can also be blamed for the\u00a0failure to alleviate […]<\/p>\n","protected":false},"author":202,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[15,111],"tags":[1060,301,1061,1058,1059],"class_list":["post-12709","post","type-post","status-publish","format-standard","hentry","category-eurozone-crisis","category-financial-reform","tag-bad-bank","tag-dimitri-papadimitriou","tag-emilios-avgouleas","tag-greek-banks","tag-recapitalization"],"jetpack_featured_media_url":"","_links":{"self":[{"href":"https:\/\/blogs.bard.edu\/multiplier-effect\/wp-json\/wp\/v2\/posts\/12709","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/blogs.bard.edu\/multiplier-effect\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/blogs.bard.edu\/multiplier-effect\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/blogs.bard.edu\/multiplier-effect\/wp-json\/wp\/v2\/users\/202"}],"replies":[{"embeddable":true,"href":"https:\/\/blogs.bard.edu\/multiplier-effect\/wp-json\/wp\/v2\/comments?post=12709"}],"version-history":[{"count":25,"href":"https:\/\/blogs.bard.edu\/multiplier-effect\/wp-json\/wp\/v2\/posts\/12709\/revisions"}],"predecessor-version":[{"id":12735,"href":"https:\/\/blogs.bard.edu\/multiplier-effect\/wp-json\/wp\/v2\/posts\/12709\/revisions\/12735"}],"wp:attachment":[{"href":"https:\/\/blogs.bard.edu\/multiplier-effect\/wp-json\/wp\/v2\/media?parent=12709"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/blogs.bard.edu\/multiplier-effect\/wp-json\/wp\/v2\/categories?post=12709"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/blogs.bard.edu\/multiplier-effect\/wp-json\/wp\/v2\/tags?post=12709"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}