The special handling of troubled assets is not uncommon in the day-to-day activities of the banking world. For example, non-performing corporate loans are typically transferred to a work-out department. 8 In the case of large loan amounts, the individual lenders form creditor pools in order to prevent coordination failures and a sudden withdrawal of lenders that can force a financially distressed firm into bankruptcy. 9 In the past, work-outs have often resulted in loans being converted into share capital. 10 A bad bank is essentially a work-out department on a much larger scale. When the illiquid assets on the banking industry’s.
