The concept of Bad Bank is simple. The bank divides its assets into two categories, good and bad. The illiquid and risky securities that are the bane of the banking system, along with other troubled assets such as nonperforming loans goes into bad pile. For good measure, the bank can toss in non-strategic assets from businesses it wants to exit, or assets it simply no longer wants to own as it seeks to lessen risk and deleverage the balance sheet. What are left are the good assets that represent the on-going business of the core bank.
