‘Bad Bank’ Just One Option Considered To Save Financials

Albert Bozzo,
CNBC
Sunday, Feb 1, 2009

The Obama administration and financial industry representatives Saturday discussed a range of measures to ease the credit crunch, including a so-called ‘bad bank’ component to buy toxic assets.

CNBC.com has now learned that the administration is considering three options for institutions: a) a bad bank, b) more capital injections into institutions and c) a so-called “ring fence” concept, in which the government uses a combination of guarantees and insurance to cover bad assets within an institution without technically removing them from the balance sheet.

The plan could entail using one or a combination of the options, according to a source familiar with the discussions.

At the same time, the administration is considering another set of measures for homeowners, including tax breaks, interest rate subsidies, additional purchases of GSE debt–as the Federal Reserve has done recently–and even direct assistance, the source said. It is unclear exactly what the latter would entail.

(ARTICLE CONTINUES BELOW)

If progress continues to be made an announcement is likely late next week, according to the source.

• A d v e r t i s e m e n t

Earlier this week, Treasury Secretary Timothy Geithner said the administration was considering a “range of options.”

Talks on aiding the financial sector resumed Saturday, following a round Friday when speculation arose that a snag had been hit over the bad bank concept, concerning the thorny issue of how to price the assets, which the banks would sell at a discounted price to the government entity.

Full article here

Comment Rules

Comments are closed.