THE TOXIC asset clean-up plan in the US, aimed at clearing bad loans from US banks’ books to enable them to raise capital and lend freely, is behind schedule and may not be fully implemented.
The plan has fallen prey to concerns from potential investors and regulators and waning interest from the banks. Investors fear Congress may set caps on pay while regulators are beginning to doubt whether the plan is necessary.
Last week, the Federal Deposit Insurance Corporation (FDIC), which was supposed to provide finance for investors to purchase bubble-era bank loans, postponed plans for a pilot sale, saying it was less urgent than had been thought.
“The timing just is not right,” an FDIC spokesman said. He added that the FDIC still wanted to test a mechanism for loan auctions, but might hold it in reserve rather than activating it for general use.
Officials say the need for these facilities has waned and that several banks have raised billions of dollars in share capital, even with toxic assets on their books.
“Banks have been able to raise capital without having to sell bad assets through the limited liability partnership, which reflects renewed investor confidence in our banking system,” FDIC chairwoman Sheila Bair said last week.
Treasury secretary Tim Geithner’s plan involved creating government-sponsored marketplaces for investors to buy bubble-era assets from the banks helped by loans from the US Federal Reserve and the FDIC. However, the Fed has confirmed it will only finance bubble-era commercial mortgage-backed securities. – (Copyright The Financial Times Limited 2009)
