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Plans to Create ‘Bad Bank’ Are Running Into Problems

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Albert Bozzo
Saturday, Jan 31, 2009

The Obama administration may still announce a plan next week to prop up ailing banks, but significant questions remain about key measures of the plan, as well as where the funding will come from, a source says.

Meanwhile, another source is telling CNBC that the plan for a so-called bad bank has hit a snag and may not happen at all. Working out details of the bad-bank proposal is proving very difficult, this source said.

Though there’s a general consensus that the federal government and the financial services industry have agreed on the need for a bad bank, any announcement next week is more likely to include a group of options and general principals rather than a plan long and deep on details.

“They’ll be a lot more questions unanswered than answered and they’ve got to get it right,” says an industry source.

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That assessment reflects the result of discussions this week between industry leaders and the Obama administration, whose point person on the bad bank concept at this point appears to be spearheaded by Lawrence Summers, director of the National Economic Council.

  • A d v e r t i s e m e n t

The concept of a government-run entity that would buy the troubled assets of private sector firms to help clean up their balance sheets has gained considerable momentum since Federal Reserve Chairman Ben Bernanke mentioned it prominently in a major speech two weeks ago.

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This article was posted: Saturday, January 31, 2009 at 5:31 am

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