How it works

An asset management vehicle (AMV) is the legal entity that implements the asset separation tool. In resolution, a resolution authority may transfer selected assets, rights or liabilities — typically impaired loans or hard-to-value portfolios — from the failing institution, or from a bridge institution, to a vehicle it controls. The vehicle then manages those exposures with a view to maximising their value through an orderly sale or wind-down. In common usage the vehicle is often called a "bad bank", because it holds the assets the market prices least well.

The purpose is to isolate problem assets so the remaining, viable part of the institution can be stabilised, sold or continued without the drag and uncertainty those exposures create. The transfer price and the assets selected are informed by the resolution valuation, so that the operation supports the resolution objectives rather than shifting losses in a way that undermines them.

Ownership and control

An asset management vehicle must be wholly or partially owned by one or more public authorities, which may include the resolution authority or the resolution financing arrangement, and it is controlled by the resolution authority. The authority approves the vehicle's constitutional documents, appoints or approves its management body, and sets its remuneration and mandate. This public control distinguishes the AMV from an ordinary private buyer under the sale of business tool.

Because the vehicle can receive transfers at a value that may differ from what a private purchaser would pay, the asset separation tool may be used only together with another resolution tool. This condition prevents the vehicle from becoming a stand-alone mechanism for public support outside the wider resolution scheme.

The asset separation tool and the asset management vehicle are set out in the Bank Recovery and Resolution Directive (BRRD), Art. 42, within the general framework for resolution tools in Art. 37. In the Banking Union, the Single Resolution Mechanism Regulation (SRMR) provides the parallel powers for the Single Resolution Board. The valuation that informs which assets are transferred and at what value rests on BRRD Arts. 36 and 74.

Practical relevance

For banks, the existence of the tool means that in a resolution their balance sheet may be split, with a defined set of exposures carved out into a separately managed vehicle. For investors and creditors, the relevant safeguard is the no-creditor-worse-off principle: the use of an asset management vehicle, like any resolution action, cannot leave a creditor worse off than in normal insolvency proceedings. The vehicle itself is a runoff structure rather than a going concern, so its objective is value maximisation over a defined horizon rather than new business. Historically, national asset management companies created during the sovereign-debt crisis illustrate the same idea outside the formal resolution framework, though the BRRD vehicle is specifically a resolution instrument controlled by the resolution authority.