Distressed Assets and Fiscal-Monetary Support: Are AMCs a Third Way?

Reiner Martin, Edward O’Brien (), Udara Peiris () and Dimitrios Tsomocos ()
Additional contact information
Edward O’Brien: European Central Bank
Udara Peiris: Oberlin College
Dimitrios Tsomocos: University of Oxford

No WP 2/2025, Working and Discussion Papers from Research Department, National Bank of Slovakia

Abstract: Following the Global Financial Crisis of 2007-8, Ireland, Slovenia, and Spain set up public Asset Management Companies (AMCs), purchasing delinquent loans equal to 44%, 16%, and 10% of GDP, respectively. Though deemed successful, it’s unclear if this was de facto traditional capital and liquidity support. We show that AMCs have a systematic advantage in reducing pecuniary externalities and costs associated with loan delinquencies. AMCs enhance average returns to bank lending, promoting additional lending (bank lending channel) and improving corporate borrowers’ balance sheets (balance sheet channel). The welfare gains of well-designed and well-managed AMCs are between 0.2% and 0.5% of steadystate consumption, independent of whether they are financed through fiscal transfers or sterilized monetary transfers; AMCs can complement traditional fiscal and monetary policies in managing financial crises.

JEL-codes: E44 G18 G21 G28 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2025-02
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Working Paper: Distressed assets and fiscal-monetary support: are AMCs a third way? (2025)
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