Creating a good bank

Willem Buiter writes about creating a good bank . The existing banks do appear to have vast liabilities and are being increasingly seen as 'bad'. He thus puts forward the idea of creating a good bank from good assets of the old banks and then these institutions would be in a position to resume lending. The bad banks, on the other hand, would be wound down.

This sounds like a good idea - but perhaps there are better ones. It strikes me that private 'good' banks and state-owned 'bad' banks are a bad combination from the financial view of the government. The state is left holding onto the losses but not having much profitable business. Surely it would be better for the banks to be nationalised and re-capitalised? The state would thus be turning bad banks into good ones and - if it retained ownership - could reap the profits in good times.

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