France and Belgium Aim to Ward Off Global Collapse with Dexia Bad Bank

In an effort to alleviate its impending liquidity problems, Franco-Belgian lender Dexia will park its assets in a vehicle called a “bad bank.”

The French and Belgian governments will guarantee the move of Dexia’s EUR180 plus billion assets. This includes a bond portfolio worth EUR95 billion and non-strategic loans of EUR30 billion; the bank’s municipal lending units, Dexia Crediop and┬áDexia Sabadell, will also go to the bad bank. These actions may enable Dexia to sell its core units and ultimately break apart the company.

Investors cheered the move, sending the markets up nearly 4% in the final minutes. The move by France (NYSE:EWQ) and Belgium (NYSE:EWK) is incredibly important because many institutional investors were starting to worry European debt bombs would detonate a domino effect leading to another global banking crisis.