The Federal Deposit Insurance Corporation [FDIC] just announced that the Legacy Loan program will be postponed.
The FDIC today formally announced that development of the Legacy Loans Program (LLP) will continue, but that a previously planned pilot sale of assets by open banks will be postponed. In making the announcement, Chairman Bair stated, “Banks have been able to raise capital without having to sell bad assets through the LLP, which reflects renewed investor confidence in our banking system. 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.”
As a next step, the FDIC will test the funding mechanism contemplated by the LLP in a sale of receivership assets this summer. This funding mechanism draws upon concepts successfully employed by the Resolution Trust Corporation in the 1990s, which routinely assisted in the financing of asset sales through responsible use of leverage. The FDIC expects to solicit bids for this sale of receivership assets in July.
Chairman Bair added, “The FDIC will continue its work on the LLP and will be prepared to offer it in the future as an important tool to cleanse bank balance sheets and bolster their ability to support the credit needs of the economy.”
The Legacy Loans Program is part of the $1 trillion Public Private Investment Program announced in March by the government as a way to encourage banks to sell bad loans weighing on their balance sheets to willing investors.
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