3.3.6 Asset relief measures

During the financial crisis, the market value of many assets fell dramatically. As a result, many banks had ‘impaired assets’ on their balance sheets. In order to remove market uncertainty and to revive market confidence, Member States have undertaken measures to relieve banks from their impaired assets. A distinction can be made between an asset guarantee and an asset purchase. An asset purchase means that the State effectively purchases the impaired assets from the bank. An asset guarantee is a form of insurance: the State commits to bear some of the losses on the impaired assets. An important feature of an asset guarantee is that the insured assets remain on the balance sheet of the beneficiary bank, while an asset purchase means that the impaired assets are hived off the balance sheet. However, in both cases, the downside risk is removed from the bank’s balance sheet.1