Federal plan to sell bad bank loans may be iced
May 28th, 2009, 3:00 am · Post a Comment · posted by Mathew Padilla, Reporter
The Wall Street Journal reported online late Wednesday that a government program designed to rid banks of bad loans may be put on hold.
The Federal Deposit Insurance Corp. is supposed to help finance purchases of bad loans from banks. Buyers would also benefit from taxpayer-funded capital placed in investment funds alongside their money. The Journal, citing anonymous sources, says:
But prospective buyers and sellers have expressed reticence to the FDIC about participating for fear the program's rules will change in a political atmosphere hostile to Wall Street. In addition, some banks that might have sold troubled loans into the program earlier in the year have become less eager as they regained a sense of stability.
The Public Private Investment Program was supposed to be split between the FDIC, focusing on whole loans, and Treasury, focused on securities. The Journal says Treasury is expected to move ahead and could start purchases in summer. But the size of the program could be reduced.
Trade publication National Mortgage News ran a similar story earlier Wednesday, quoting Sheila Bair, chairman of the Federal Deposit Insurance Corp. She said, "We are finding both on the buyer and seller side there continues to be discomfort about Congress' review of this program."
Congress passed a bill that directs the Treasury secretary to craft conflict of interest parameters for PPIP.
In a separate earlier article, the Wall Street Journal reported banking trade groups have lobbied the FDIC to let banks both buy and sell assets in the program. Hence, critics say banks could game the system at taxpayer expense.
According to National Mortgage News, Bair downplayed the issue, saying, "Banks will not be able to bid on their own assets."
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