One of the most interesting conclusions of the G20 summit released in the nine-page communiqué published by the group is that of the establishment of a asset disposal system.

Citing many economists who agree that the so-named “credit crunch” will continue until the top nations remove toxic assets from bank’s balance sheet, the communiqué had each of the nations — accounting for 80 per cent of the world’s GDP — pledge to dispose of their bad assets.

The two methods for eliminating the assets is to either establish a “bad bank” system, where a government insured or operated bank would purchase toxic assets from the other banks for a safe fraction of their value; or to have a government organization, which would insure assets against default — effectively returning the assets to face value.

“The G20 countries have decided on a profound reform of the international financial architecture. It is now on record that a breakdown in regulation was at the origin of the financial crisis,” said President of France, Nicholas Sarkozy.

For a “bad bank” to be established which would take on these effective “hot potato” assets, the cost to government’s internationally could be incredibly high; whether funding will be held by individual nations or by a cooperative of G20 nations is unclear at this point. Officials believe, however, that this cost is offset by the recovery of financial markets, particularly consumer and corporate lending which would stimulate private investment.

Following in the second option, G20 leaders agreed to add an additional $250 billion in new trade credit guarantees via the World Bank and IMF, allowing exporters to obtain credit despite the any form of credit crisis.

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