With the value of their toxic assets written down to zero, a number of banks will no longer meet the legislated core capital requirement. The government should take a stake in these banks in order to recapitalize them. The prior removal of troubled assets will limit the risk taken on by the government and provide good prospects for the appreciation of its investment. The government’s risk of loss (through the bad bank) and opportunity for success (through the rescued good bank) would thus be clearly separated from one another. This would also contribute to transparency. .
