Economics • Banking & FinanceEasy
What does the term 'Bad Bank' signify in the context of financial restructuring?
A. An asset reconstruction company that takes over bad loans from commercial banks to clean up their balance sheets✓ Correct Answer
B. A central bank that prints excessive currency leading to hyperinflation
C. A commercial bank that has been shut down permanently due to fraud
D. A specialized bank meant exclusively for rural moneylenders
💡 Solution & Explanation
A bad bank is an asset reconstruction company that purchases non-performing assets from commercial banks, allowing lenders to clean their balance sheets and focus on fresh credit creation. Incorrect options describe central bank monetary failures or normal bank closures due to malfeasance. Banking sector reforms and non-performing asset management are important current affairs topics for competitive exams.
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