On the face of it bankers across the world have a lot of experience of running bad banks, or at least running banks badly, so it should be a piece of cake. But a proper, official bad bank is a new one for pretty well everybody, although the Swedes had a crack at it in the 1990s during their banking crisis. A bad bank is one in which you dump all the nasty loans and other commitments that are screwing up your balance sheet by forcing you to make provisions against future losses. This in turn stops you lending because you need to keep putting ever larger amounts of money aside to cover your potential liabilities. So the theory seems to be that the state takes on the responsibility for the bad bank, which obviously helps the banks although not necessarily the state. The key word is 'potential.' No Government or central bank could afford to take all this bad bank responsibility if it thought that all these currently toxic assets were going to stay that way. But some sub-prime mortgage payers in the US for example, where all this started, will keep paying their mortgages and, one day, if and when the US economy and housing market recovers, these will be worth something and can be sold on. The same applies to things like credit default swaps, in effect insurance policies written against bonds and loans. If they don't all go pear-shaped then the ones still standing will be worth something too. The key issue here is, what does the bad bank pay for them? If it doesn't pay anything than the banks will still have to write off all the money which will blitz balance sheets. If they charge too much then the state-owned bad bank will never get its money back. So working out the details is tricky to put it mildly. But that hasn't stopped UK chancellor Alistair Darling admitting yesterday that he might have to try, just as Barack Obama is trying to sort a deal in the US. The European Central Bank says it's going to produce some 'guidance' on bad banks, presumably so that member countries don't break EU rules. And the German government says it's going to help its own banks set up their own bad banks, although how this would work is anyone's guess. Off we go again.