Bridge Banks: Detox Tools for a Melted Economy

Abstract:     
This paper compares the fragmented three-pillar banking system in Germany to the banking system in the U.S. and suggests an amendment to 12 U.S.C.A. § 1821(n), the bridge bank statute, to make some fragmentation of the financial sector in the U.S. possible. Statutory amendments in the U.S. inspired by the German bad bank model could promote financial stability, eliminate some debts, and conserve powers for the U.S. Bridge banks are one way to allow for such fragmentation in the financial sector and to avoid the need for government bail-outs of banks that are too big to fail. Bridge banks in the U.S. involve a linear depletion of government funds whereas the German bad bank model allows for recycling of funds, paying of dividends based on the bad banks and an economic recovery from the inside out, which would also increase consumers' buying power and save taxpayer funds by healing the economy from the inside out.

Keywords: bridge bank, international banking, three-pillar, German banking, bad bank, fragmentation

working papers series