FDIC Postpones Pilot Sale Of Failed Bank Assets

Published: 08-Jun-2009

Unable to get US banks to sell their toxic loans, the Federal Deposit Insurance Corp (FDIC) has postponed its pilot sale of toxic bank loans seized from failed lenders using guaranteed debt financing.

According to Chairman of FDIC, Sheila Bair, the agency aimed to launch the test sale in June and that it would be in the range of about $1 billion of distressed bank loans. The loan purchase program is part of the larger Public- Private Investment Program, which is intended to get rid of toxic assets from banks’ balance sheets. The other part of it, involving banks' legacy securities, is still under development, with plans to grant preliminary qualifications to fund managers.

The toxic asset plan was originally conceived as the main plank in the government's strategy to rescue the financial system in the wake of the sub-prime and global credit crisis. However, as most of the banks had succeeded in getting private capital without cleansing the toxic assets in their balance sheets, expectations about the plan was scaled back. The program also met with some resistance from potential investors, who feared regulators might restrict compensation structures or impose audits on their investment firms.

“Banks have been able to raise capital without having to sell bad assets through the FDIC's so-called Legacy Loan Program. As a consequence, banks and their supervisors will take additional time to assess the magnitude and timing of troubled assets sales as part of our larger efforts to strengthen the banking sector,” she further added.

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