We have all heard of the “Bad Bank“,but do we really know what it is and why it was founded? Let’s try to explain it to you:
Sareb, the Bad Bank
Banco Malo, Sareb is a private entity and a key instrument in the restructuring of the Spanish financial system. The Sociedad de Gestión de Activos Provenentes de la Reestructuración Bancaria (Sareb) is a private entity created in November 2012 to help clean up the Spanish financial sector, and in particular those entities that were experiencing problems due to their excessive exposure to the real estate sector.
The Memorandum of Understanding (MoU) that the Spanish government signed in July 2012 with its European partners determines the establishment of Sareb as one of the conditions for receiving the financial assistance. Thus, the agreement provides for the creation of a management company to which the real estate assets of entities in difficulty are to be transferred, with the aim of reducing the risks of these entities and liquidating problematic assets in an orderly manner.
The majority of Sareb’s capital is private, 55%, while 45% is held by the Bank Restructuring Fund (FROB).
By transferring non-performing assets from banks to a separate entity, it helps participating banks to restructure their balance sheets, which should in turn increase their financial strength. By facilitating the restructuring and recovery of the banking sector, albeit by transferring the risk from the banking sector to the State, these mechanisms should make a positive contribution to banks’ ability to grant credit and support economic recovery.
Their commitment is to sell the financial and real estate assets received within the established period, 15 years, trying to obtain the maximum value for them, and to comply with the repayment of their debt guaranteed by the Spanish State.
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