The creation of one or more bad banks represents a way of overcoming this dilemma. 7 A bad bank purchases or takes over troubled loans or securities and then attempts to restructure and manage these assets in a way that maximizes their value. Once the banks are freed from troubled assets and the need to constantly write down asset values, the negative effects associated with the threat of bankruptcy, a reduction in lending due to a lack of capital, and the readiness to take risks at the expense of creditors and the general public can be minimized or eliminated. However,.
