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Issues and Challenges in Establishing Bad Banks in Europe

Building on a variety of historic models, particularly the Federal Deposit Insurance Corporation (FDIC) and the Resolution Trust Corporation (RTC) in the US and the Securum and Retriva asset management companies in Sweden, Europe has seen a surge of interest over recent months in the use of so-called bad banks as a possible solution to the difficulties currently faced by the banking sector. Specifically, Germany has resolved a bill for enabling a rescue fund called SoFFin to guarantee bonds backed by distressed asset-backed securities in return for a fee based on expected losses and a loss sharing mechanism, Ireland is planning to introduce legislation next month to establish its National Asset Management Agency (NAMA) which will take over troubled loans from Irish banks and in Switzerland UBSs bad bank is already managing over Euro 60 billion of assets.

In this Stay Current, lawyers from the Paul Hastings European Finance, Regulatory and Real Estate practices explore the issues that arise in the creation of these structures in Europe. A companion Stay Current considers the challenges and opportunities that arise for investors and other interested parties in the operation of such schemes.

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