An European Central Bank working paper by Reiner Martin and co-authors assesses whether public Asset Management Companies (AMCs) that purchase delinquent loans can provide a distinct channel of financial-crisis support alongside traditional bank recapitalisation, liquidity facilities and quantitative easing. Using a model calibrated to euro area data, the authors argue that well-designed AMCs can raise bank lending and improve macroeconomic outcomes, with welfare gains estimated at 0.2% to 0.5% of steady-state consumption, and that the results are broadly independent of whether funding is fiscal or via sterilized monetary transfers. The paper draws on post-2008 euro area examples, noting that Ireland, Slovenia and Spain established AMCs that purchased delinquent loans equivalent to 44%, 16% and 10% of GDP, respectively. In the model, an AMC supports lending by buying loans from banks at prices linked to a steady-state default rate rather than depressed market prices in downturns, which increases intermediaries’ returns, lifts deposit rates and deposit supply, and eases firms’ credit constraints. Higher investment and profits then strengthen corporate equity and repayment incentives, reinforcing a balance sheet channel that lowers defaults and supports a virtuous cycle of improved credit conditions and lending.
European Central Bank 2026-01-01
European Central Bank working paper models public asset management companies as an alternative or complement to fiscal and monetary crisis support
A European Central Bank working paper by Reiner Martin and co-authors evaluates public Asset Management Companies (AMCs) in financial-crisis support by purchasing delinquent loans. Using euro area data, the study suggests well-designed AMCs enhance bank lending and macroeconomic outcomes, with welfare gains of 0.2% to 0.5% of steady-state consumption. The paper highlights examples from Ireland, Slovenia, and Spain, where AMCs significantly impacted GDP.