Friday, January 16, 2009

Paulson, Bair Raise ‘Aggregator Bank’ to Remove Toxic Assets

(Bloomberg) The heads of the U.S. Treasury and Federal Deposit Insurance Corp. gave further momentum to the idea of a new government-backed bank to remove toxic assets from lenders’ balance sheets.

“A lot of work has been done on an aggregator bank” and other ways of using the $700 billion financial-rescue fund “to let it go further when it comes to dealing with illiquid assets,” Treasury Secretary Henry Paulson told reporters today in Washington. FDIC Chairman Sheila Bair praised the idea in an interview on CNBC, saying it might have “some merit.”

Today’s remarks come days before President-elect Barack Obama takes office, and signal a readiness among regulators to undertake what’s likely to be the most radical effort yet to unfreeze lending. Fed Chairman Ben S. Bernanke earlier this week urged a “comprehensive plan” to address illiquid assets, floating the idea of a “bad bank.”

Paulson listed several ideas under consideration to help sustain ailing banks and stabilize markets. Those include broadening the Fed’s Term Asset-Backed Securities Loan Facility, a $200 billion program aimed at reviving consumer lending.

Paulson also urged the Obama administration to extend efforts to stabilize the financial system and work with Congress to pass an economic stimulus package. He said the Treasury and other regulators are looking at ways to get the most out of what’s left of the $700 billion Troubled Asset Relief Program.

“In the short term, the focus has to be on programs like the TARP and stimulus because we need to get this economy going,” Paulson said.

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