Why banks may have an incentive to quickly settle judgments

[FlaLawyer]

Banks have incentives to settle with judgment debtors quickly and for low amounts of cash. -- FloridaAssetProtection.blog.com (http://floridaassetprotection.blogs.com/alperlaw/2009/09/banks-have-incentives-to-settle-with-judgment-debtors-quickly-for-low-amounts-of-cash.html)

Just received this in my blog feed. Thought you guys would find it useful.

[Ravenous Wolf]

That is very very interesting. I wasn't aware of the "significant administrative expenses of carrying bad debts" because I thought that it was already a low fixed cost. But I suppose if you add everything to it, year after year, it does add up.

In addition,

"Bank accounting and financial regulations render uncollected debts low value assets which are expensive to maintain on bank accounting books."

That makes a lot of sense because after a while, that asset becomes worthless if it cannot be collected. But the part that really caught my attention was:

"Additionally, bank regulations require banks to have capital reserves to offset "bad debts" so that uncollected judgments requiring setting aside capital which otherwise could be used to make new loans."

To offset the "bad debts" ties up their bread and butter because a bank is in the business to make money by continuing to offer loans to people. I remember one of my accounting professors using up part of an hour of class to completely trash bad debts. We knew the accounting of it but now I think I better understand the financial perspective of it.

However, a Joe Schmoe at the bank may not have the foggiest idea on what it really costs the bank so he or she may not want to even consider any kind of settlement. From there I would imagine having to go up the food chain because someone in management, who is part of the budget on a frequent basis, may vividly understands the numbers perspective of it.

[unusualsuspect]

The capital reserves eat up income, so yes there is a huge incentive to settle.. couple that with FDIC pouring over bad/noncollectable assets means that these judgments could be settled for pennies on the dollar.