Technical Notes and Manuals

The Case for (and Against) Asset Management Companies in Banking Crises

By Miguel A Otero Fernandez, Jaime Ponce, Marc C Dobler, Tomoaki Hayashi

July 9, 2024

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Miguel A Otero Fernandez, Jaime Ponce, Marc C Dobler, and Tomoaki Hayashi. The Case for (and Against) Asset Management Companies in Banking Crises, (USA: International Monetary Fund, 2024) accessed November 21, 2024

Disclaimer: This Technical Guidance Note should not be reported as representing the views of the IMF. The views expressed in this Note are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

This technical note explores the advantages and disadvantages of establishing state-sponsored centralized asset management companies (AMCs) to address high levels of bank asset distress during financial crises. AMCs may offer potential benefits like mitigating downward price spirals or achieving efficiency gains by consolidating creditor claims and scarce expertise. However, significant risks and costs warrant careful consideration. These include extreme uncertainties in asset valuation and substantial operational and financial risks. Past international experiences highlight the dangers of underestimating these risks, potentially turning the AMC into a mechanism for deferring losses to taxpayers, rather than minimizing them, and ultimately increasing long-term public costs and moral hazard. This technical note emphasizes these trade-offs and discusses crucial design elements for effective AMCs: a clear mandate, transfer pricing that prudently reflects asset values and disposal costs, strong governance with independent management, and efficient operational processes promoting transparency and accountability.

Subject: Asset and liability management, Asset management companies, Asset valuation, Distressed assets, Expenditure, Financial institutions, Financial sector policy and analysis, Loans, Nonperforming loans, Revenue administration

Keywords: AMC debt, AMC need, Asset characteristic, Asset management companies, Asset Management Company (AMC), Asset price spiral, Asset valuation, Bank asset distress, Bank resolution, Bank restructuring., Centralized asset management companies, Distressed assets, Financial Crisis, Financial regulation and supervision, Give borrower, Global, Loans, Nonperforming loans, Non-performing Loans, Problem Asset Resolution, Recovery value, Resolution strategy

Publication Details

  • Pages:

    74

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Technical Notes and Manuals No. 2024/004

  • Stock No:

    TNMEA2024004

  • ISBN:

    9798400275517

  • ISSN:

    2075-8669

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