The current shareholders will cover the resulting losses. Under the plan, the government would bear responsibility for the management and future resale of toxic assets at its own expense and recapitalize the good bank by taking an equity stake in it. The risk to taxpayers from this investment would be acceptable, however, once the banks are freed of their toxic assets. A clear emphasis that the government stake is temporary would also be necessary. The government would cover the bad bank’s losses, while profits would be distributed to the distressed bank’s current shareholders. Either a separate bad bank can.
