Government to build vehicle for toxic real estate assets

The "bad German bank" that the Spanish government is thinking about introducing once it outlines a new blueprint for the banking sector is a form of real estate de-consolidation.

The tool looks similar to another tool, which was ultimately rejected, that the Spanish government considered just before Luis de Guindos and his team put together the current financial reforms. There have been countless iterations of tools like this, and this one is neither clear cut nor capable of clearing up doubts about the health of the Spanish financial sector.

Nicknamed the "bad German bank," the tool would resemble a plan that Germany put together in the past, for which the EU congratulated the nation, and would be reserved exclusively for real estate assets owned by banks. Each bank would create a toxic asset vehicle that consolidates its hard-to-sell undeveloped land plots and, once they separate these toxic assets from their balance sheets, they will be given access to much-needed liquidity. These shares are the most problematic, because in contrast to housing assets, the banks cannot get adequate sale prices for them.