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In addition to segregating or removing the bad assets from parent banks' balance sheet, a bad bank structure permits specialized management to deal with the problem of bad debts.The approach allows good banks to focus on their core business of lending while the bad bank can specialize in maximizing value from the high risk assets.Riga-based Parex Bank, the largest Latvian-owned bank, was vulnerable as it held large sums from foreign depositors (which began withdrawing assets around the time of Lehman Brothers September 2008 collapse) and was heavily exposed to real estate loans.

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Two of the country's largest banks – Fortis and Dexia – started to face severe problems, exacerbated by the financial problems hitting other banks around the world. The government managed the situation by bailouts, selling off or nationalizing banks, providing bank guarantees and extending the deposit insurance. The Dutch part was nationalized, while the Belgian part was sold to the French bank BNP Paribas.

Dexia group was dismantled, Dexia Bank Belgium was nationalized.

The goal of the segregation is to allow investors to assess the bank's financial health with greater certainty.

A bad bank might be established by one bank or financial institution as part of a strategy to deal with a difficult financial situation, or by government or some other official institution as part of an official response to financial problems across a number of institutions in the financial sector.

The bad assets were left behind, effectively creating a bad bank with the original Parex Banka name and no retail depositors.

The Parex "bad bank," its core retail functions stripped out by the 2010 split, gave up its banking licence in 2012 to become professional distressed asset management company Reverta.Sponda was privatized and listed in Helsinki Stock Exchange in 1998, and in 2012, all government-held shares were sold by their holder, the government's asset management company Solidium.As of 2016, Sponda operates and remains on the stock market.In early 2009, Citigroup dumped more than 0 billion worth of impaired assets into bad bank Citi Holdings.Estonia, Latvia, and Lithuania joined the European Union in 2004, attracting an influx of foreign investment and launching a real estate bubble which burst during the financial crisis of 2007–08, leaving the countries saddled with foreign debt.The government retained a significant equity stake in Nordea.