A Comparative Analysis of the Bad Asset Management Companies of Spain and Hungary: The Devil is in the Details

Abstract

Bad asset management companies -- also called 'bad banks' -- were created in many states on both sides of the Atlantic as a consequence of the 2007 global financial crisis. In Spain, the SAREB was created in 2012 and in Hungary, MARK Ltd. was created in 2014 in order to clean the contaminated portfolios of Hungarian banks and manage the purchased bad assets. Through a comparative analysis, this paper answers the questions; how does the creation of bad banks change the delicate balancing of interests between the different stakeholders? Are these companies in compliance with the EU competition law and State aid rules? How does their operation interplay with the new bank restructuring rules of the EU? This paper argues that the creation of bad banks may have had positive short-term effects, such as the enhanced protection of the interests of investors and shareholders, restoration of confidence in the banking sector and the promotion of the stability of the banking system. However, this paper is of the view that, in the long term, bad banks create a burden on the public, increase sovereign risk and contribute to the increase of sovereign debt and therefore to the long-run instability of the EU too.

Keywords: bad banks, bad asset management company, financial crisis, stability of the banking system, sovereign debt