Working out a problem loan is never easy, but it becomes quite a bit tougher when a troubled bank is the only underlying collateral.

Dozens of lenders that extended loans to other banks in recent years are facing such unpleasant scenarios. As an undercapitalized borrower struggles to repay, the lender is left with few options for resolution. Instead, analysts said, often the best they can do is to demonstrate flexibility while recognizing they may never be repaid in full as their borrower banks creep toward failure.

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