If an FI embraces the concept of good bank/bad bank,

Question

Quizplus · Accepted Answer

The concept of a good bank/bad bank involves separating a financial institution's healthy, performing assets from its non-performing assets in order to manage risk and mitigate losses. The non-performing assets are usually transferred to a special purpose vehicle (SPV) or "bad bank" which is organized to liquidate or recover the value of these assets. Option C correctly identifies the bad bank as an SPV. Option A is incorrect as correspondent banks are not required to accept bad bank assets. Option B is incorrect as organizing good bank assets into a mutual fund is not part of the good bank/bad bank concept, and the sale of mutual fund shares would not necessarily raise funds for the bad bank. Option D is incorrect as bad bank assets would not be funded by FDIC insured deposits, since the purpose of the bad bank is to separate and manage the institution's non-performing assets.

If an FI Embraces the Concept of Good Bank/bad Bank