.Paulson, Bair Raise ‘Aggregator Bank’ for Toxic Debt (Update1)
Jan. 16 (Bloomberg) -- The heads of the U.S. Treasury and Federal Deposit Insurance Corp. gave further momentum to the idea of a new government-backed bank to remove toxic assets from lenders’ balance sheets.
“A lot of work has been done on an aggregator bank” and other ways of using the $700 billion financial-rescue fund “to let it go further when it comes to dealing with illiquid assets,” Treasury Secretary Henry Paulson told reporters today in Washington. FDIC Chairman Sheila Bair praised the idea in an interview on CNBC, saying it might have “some merit.”
Today’s remarks come days before President-elect Barack Obama takes office, and signal a readiness among regulators to undertake what’s likely to be the most radical effort yet to unfreeze lending. Fed Chairman Ben S. Bernanke earlier this week urged a “comprehensive plan” to address illiquid assets, floating the idea of a “bad bank.”
Investors continue to question banks’ viability even after officials committed the first $350 billion from the Troubled Asset Relief Program and after a doubling in the Fed’s balance sheet to $2.1 trillion. Bank of America Corp. today required a further $20 billion injection of taxpayer funds and government backing for a $118 billion pool of bad assets.
‘Barrier’ to Investments
Paulson and Bernanke sought to end a series of ad-hoc interventions with financial companies last September, by urging lawmakers to approve the TARP. While the initial plan was to use the TARP to purchase illiquid assets, Paulson instead used the money to buy stakes in banks. The Fed chief said Jan. 13 that the bad assets are a “barrier’ to investment and are holding back lending.
Obama’s advisers see an increasingly grave banking crisis and are considering proposals far more sweeping than any steps that have been taken so far, according to people who’ve discussed the outlook with them.
“They need to do something dramatic,” said Harvard University Professor Kenneth Rogoff, a former chief economist at the International Monetary Fund. He is a member of the Group of Thirty counselors on financial matters, a panel that includes Treasury Secretary-designate Timothy Geithner and Lawrence Summers, incoming director of the National Economic Council.
The Senate yesterday approved the release of the second half of TARP, and Obama’s Treasury could use much of it to back a bigger campaign to buy the illiquid assets. The FDIC, which has authority to take “any action” with insured deposit-taking firms deemed necessary to counter “adverse effects on economic conditions or financial stability,” could also play a role.
‘Capital Cushion’
“We think by leveraging TARP funds in this way, you could have a significant capacity to acquire troubled assets,” Bair, who is set to stay on under Obama, said today. Officials could “require those institutions selling assets into this facility to contribute some capital cushion themselves.”
The Standard & Poor’s 500 Financials Index slid 5.1 percent to 133.28 at 12:01 p.m., extending its decline this month to 21 percent. Charlotte, North Carolina-based Bank of America lost 10 percent, and is down 43 percent this week, after today announcing its first loss since 1991.
Paulson listed several ideas under consideration to help sustain ailing banks and stabilize markets. Those include broadening the Fed’s Term Asset-Backed Securities Loan Facility, a $200 billion program aimed at reviving consumer lending.
Stimulus Package
Paulson also urged the Obama administration to extend efforts to stabilize the financial system and work with Congress to pass a stimulus package. House lawmakers yesterday began work on an $825 billion economic-recovery package.
“In the short term, the focus has to be on programs like the TARP and stimulus because we need to get this economy going,” Paulson said.
Shoring up banks’ longer-term financing and strengthening efforts to address the housing crisis would also help stabilize the financial system, the departing Treasury chief said.
Lower mortgage rates and foreclosure mitigation efforts will help slow the decline in house prices, helping investors figure out how to value home-loan-related assets.
Investors also need sources of longer-term funding to feel confident investing in the types of assets that have been the most troubled, he said. “Many investors say they would love to come in and buy mortgages but they can’t get the funding,” Paulson said. “If there is term funding, then it’s easier for people to come in.”
Paulson will depart when Obama takes office Jan. 20. Treasury Undersecretary Stuart Levey will become the department’s acting chief pending the Senate confirmation of Geithner, the New York Fed President. Geithner is scheduled to appear at a confirmation hearing Jan. 21.
Bloomberg
Hey can I deposit debt. I'll run out right now and get some.
“A lot of work has been done on an aggregator bank” and other ways of using the $700 billion financial-rescue fund “to let it go further when it comes to dealing with illiquid assets,” Treasury Secretary Henry Paulson told reporters today in Washington. FDIC Chairman Sheila Bair praised the idea in an interview on CNBC, saying it might have “some merit.”
Today’s remarks come days before President-elect Barack Obama takes office, and signal a readiness among regulators to undertake what’s likely to be the most radical effort yet to unfreeze lending. Fed Chairman Ben S. Bernanke earlier this week urged a “comprehensive plan” to address illiquid assets, floating the idea of a “bad bank.”
Investors continue to question banks’ viability even after officials committed the first $350 billion from the Troubled Asset Relief Program and after a doubling in the Fed’s balance sheet to $2.1 trillion. Bank of America Corp. today required a further $20 billion injection of taxpayer funds and government backing for a $118 billion pool of bad assets.
‘Barrier’ to Investments
Paulson and Bernanke sought to end a series of ad-hoc interventions with financial companies last September, by urging lawmakers to approve the TARP. While the initial plan was to use the TARP to purchase illiquid assets, Paulson instead used the money to buy stakes in banks. The Fed chief said Jan. 13 that the bad assets are a “barrier’ to investment and are holding back lending.
Obama’s advisers see an increasingly grave banking crisis and are considering proposals far more sweeping than any steps that have been taken so far, according to people who’ve discussed the outlook with them.
“They need to do something dramatic,” said Harvard University Professor Kenneth Rogoff, a former chief economist at the International Monetary Fund. He is a member of the Group of Thirty counselors on financial matters, a panel that includes Treasury Secretary-designate Timothy Geithner and Lawrence Summers, incoming director of the National Economic Council.
The Senate yesterday approved the release of the second half of TARP, and Obama’s Treasury could use much of it to back a bigger campaign to buy the illiquid assets. The FDIC, which has authority to take “any action” with insured deposit-taking firms deemed necessary to counter “adverse effects on economic conditions or financial stability,” could also play a role.
‘Capital Cushion’
“We think by leveraging TARP funds in this way, you could have a significant capacity to acquire troubled assets,” Bair, who is set to stay on under Obama, said today. Officials could “require those institutions selling assets into this facility to contribute some capital cushion themselves.”
The Standard & Poor’s 500 Financials Index slid 5.1 percent to 133.28 at 12:01 p.m., extending its decline this month to 21 percent. Charlotte, North Carolina-based Bank of America lost 10 percent, and is down 43 percent this week, after today announcing its first loss since 1991.
Paulson listed several ideas under consideration to help sustain ailing banks and stabilize markets. Those include broadening the Fed’s Term Asset-Backed Securities Loan Facility, a $200 billion program aimed at reviving consumer lending.
Stimulus Package
Paulson also urged the Obama administration to extend efforts to stabilize the financial system and work with Congress to pass a stimulus package. House lawmakers yesterday began work on an $825 billion economic-recovery package.
“In the short term, the focus has to be on programs like the TARP and stimulus because we need to get this economy going,” Paulson said.
Shoring up banks’ longer-term financing and strengthening efforts to address the housing crisis would also help stabilize the financial system, the departing Treasury chief said.
Lower mortgage rates and foreclosure mitigation efforts will help slow the decline in house prices, helping investors figure out how to value home-loan-related assets.
Investors also need sources of longer-term funding to feel confident investing in the types of assets that have been the most troubled, he said. “Many investors say they would love to come in and buy mortgages but they can’t get the funding,” Paulson said. “If there is term funding, then it’s easier for people to come in.”
Paulson will depart when Obama takes office Jan. 20. Treasury Undersecretary Stuart Levey will become the department’s acting chief pending the Senate confirmation of Geithner, the New York Fed President. Geithner is scheduled to appear at a confirmation hearing Jan. 21.
Bloomberg
Hey can I deposit debt. I'll run out right now and get some.
posted by madtom at 10:14 PM
1 Comments:
We think by leveraging TARP funds in this way, you could have a significant capacity to acquire troubled assets,” Bair, who is set to stay on under Obama, said today. Officials could “require those institutions selling assets into this facility to contribute some capital cushion themselves.
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