{ "docId": "019dd923-5ca1-7489-b636-5bdb4b29bc2d", "docSlug": "cb70fa2fdc72b67f", "documentTitle": "Deleveraging Europe", "authorId": "Deloitte", "authorName": "Deloitte", "documentKindSlug": "consulting-deck", "documentKindLabel": "Consulting deck", "sourceTypeSlug": "strategy_consulting", "sourceTypeLabel": "Strategy consulting", "presentationDate": null, "orientation": "square", "aspectRatio": 1, "pageNumber": 17, "pageCount": 61, "prevPage": 16, "nextPage": 18, "slideType": "situation_overview", "function": "establish_context", "density": "overcrowded", "nDataPoints": 0, "notes": "Includes a quote from Andrea Enria regarding the effectiveness of AMCs in clearing bank balance sheets.", "elementsJson": [ "photo", "paragraph", "quote_block" ], "metadataConfidence": 1, "imagePath": null, "slideHref": "/slides/019dd923-5ca1-7489-b636-5bdb4b29bc2d/17", "deckHref": "/decks/019dd923-5ca1-7489-b636-5bdb4b29bc2d", "deckJsonHref": "/decks/019dd923-5ca1-7489-b636-5bdb4b29bc2d.json", "deckAnchorHref": "/decks/019dd923-5ca1-7489-b636-5bdb4b29bc2d#slide-17", "components": [ { "bbox": null, "kind": "callout", "text": "Experience shows that when [AMCs] were used after the crises, bank balance sheets have been cleared up quicker with a more effective restoration of banks' ability to lend", "attrs": null, "subkind": null, "toolName": "Visual emphasis", "toolSlug": "visual-emphasis", "confidence": null, "componentId": "019dd951-c239-70c0-95fc-25a4ed7f7706", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.94, "w": 0.46, "x": 0.03, "y": 0.03 }, "kind": "image", "text": null, "attrs": null, "subkind": "photo", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "46de7367-39a2-440d-869a-8bf772f5d332", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.06, "w": 0.22, "x": 0.76, "y": 0.46 }, "kind": "paragraph", "text": "The concept of separating good and bad assets has also been used via several different models during past banking crises in Sweden, France and Germany, and again to significant effect during the GFC, when the concept was revived.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "1b693e3b-8b7d-47db-bccc-ebc764b19865", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.09, "w": 0.22, "x": 0.76, "y": 0.63 }, "kind": "paragraph", "text": "During the GFC, the systemic impact of the crisis on the banking sector meant that the emphasis was on rebuilding trust with stakeholders by visibly separating bad assets and providing transparency on operating performance. Generally, given insufficient bank capital levels, this needed government intervention and covered more than one institution's impaired loans, as well as driving sectoral solutions.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "6d25f05c-56ad-40b5-b92d-21aacc6bdc9a", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.07, "w": 0.22, "x": 0.76, "y": 0.36 }, "kind": "paragraph", "text": "In 1988 Mellon Bank established its own bad bank (Grant Street National Bank), using a combination of own funds and bonds sold to investors, to focus on resolving high levels of NPLs in the bank's loan portfolio (primarily in the energy and real estate sectors).", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "8c52cfbb-aa47-498c-8622-3de764833052", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.09, "w": 0.22, "x": 0.76, "y": 0.79 }, "kind": "paragraph", "text": "Thus in 2009 in Ireland the National Asset Management Agency (NAMA) was established to acquire and manage the impaired commercial real estate loans of six Irish banks which had required government support. Similarly in 2012, SAREB was established to manage the impaired loans and foreclosed real estate assets of four nationalised Spanish banks.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "8cfc5828-d6b2-4b9e-b9b6-6e30a5c88574", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.05, "w": 0.22, "x": 0.76, "y": 0.55 }, "kind": "paragraph", "text": "Although AMCs and bad banks can have different scopes and structures, every non-core unit will ultimately look to optimise its balance sheet via risk minimisation and value maximisation.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "8f06372f-576c-4ec5-9c0f-031434e24978", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.08, "w": 0.22, "x": 0.52, "y": 0.41 }, "kind": "paragraph", "text": "In recent months, as governments and policy makers look to protect economies from the impact of the COVID-19 pandemic, the spotlight has once more turned upon the role that AMCs (specifically national AMCs) can play in dealing with the widely anticipated large increase in NPLs.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "a3b8994c-f6cf-4215-8070-149af4c08478", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.12, "w": 0.22, "x": 0.52, "y": 0.27 }, "kind": "paragraph", "text": "The GFC and its aftermath left many banks with a large volume of problematic non-performing assets. To deal with these, asset management companies (AMCs) and 'bad banks' (non-core asset management units of individual banks) have emerged as a way of cleaning up banks' balance sheets and allowing them to start lending again.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "df82bac4-c611-4e2e-8fbc-043e35a163cd", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.06, "w": 0.22, "x": 0.76, "y": 0.27 }, "kind": "paragraph", "text": "Early examples include Korea, with the establishment in 1962 of KAMCO as a permanent bad bank, to purchase and resolve NPLs - a role that was greatly expanded during the Asian financial crisis (AFC) in the late 1990s.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "f0c5128f-0659-41eb-9a12-48ca43e835c8", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.12, "w": 0.22, "x": 0.52, "y": 0.81 }, "kind": "paragraph", "text": "As a policy tool, national AMCs have historically played an important role in bridging the pricing gap after an economic shock, rebuilding dysfunctional NPL markets, and providing banks with an efficient, less value-destructive strategy to wind down assets over a longer timescale than might otherwise be the case, while at the same time improving transparency and helping rebuild investor confidence.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "fb14a83b-e3cc-435f-a9e2-297854921de8", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.04, "w": 0.22, "x": 0.52, "y": 0.67 }, "kind": "paragraph", "text": "Andrea Enria, Chairman of the Supervisory Board of the European Central Bank, interview with the Financial Times", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "fb3c8d1d-38fa-4377-9bf2-1608df0fcb27", "frameworkName": null, 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