US readies capital injection for banks
The Obama administration plans to use capital injections as an incentive to get US banks to sell distressed securities to investors.
By Bloomberg |
WASHINGTON | NEW YORK: The Obama administration plans to use capital injections as an incentive to get US banks to sell distressed securities to investors. The private investors will also get federal loans to buy the assets, in a two-pronged strategy intended to revive trading in mortgage-backed debt.
Treasury Secretary Timothy Geithner said in an interview with PBS���s Charlie Rose show that ���it requires making sure there���s capital available to the system, that these banks have the incentive to start to move this stuff, that there���s a mechanism available��� to finance investors.
Geithner���s initiative reflects a bet that it will be cheaper to provide taxpayer financing than have the government buy the assets outright, as contemplated by the Bush administration. ���In conception, it���s reasonably well designed; the question is in the execution,��� said Randal Quarles, a former Treasury undersecretary who now works at the Carlyle Group in Washington. ���There are a lot of details that remain to be worked out in pushing things in these two directions.���
Since the Treasury���s $700 billion bank-rescue package was approved last October, regulators have had difficulty devising a pricing mechanism for the toxic securities. That complication, coupled with the potential cost, caused then-Treasury Secretary Henry Paulson to drop his effort to deal with the assets.
While the Obama administration considered creating a so-called bad bank to buy the assets, that idea was also scrapped in favor of a public-private partnership. Private investment managers would run the funds that purchase the securities, in a program that may reach $1 trillion with government financing.
Regulators aim to use the stress tests they began last month on the 19 biggest US banks, and any ensuing injections of Treasury funds, to encourage them to write down the illiquid assets from the levels on their books, according to people familiar with the government���s discussions.
The reviews, which include assessments of how much more capital lenders may need to weather the economic downturn, are scheduled to be completed by the end of April.
Treasury Secretary Timothy Geithner said in an interview with PBS���s Charlie Rose show that ���it requires making sure there���s capital available to the system, that these banks have the incentive to start to move this stuff, that there���s a mechanism available��� to finance investors.
Geithner���s initiative reflects a bet that it will be cheaper to provide taxpayer financing than have the government buy the assets outright, as contemplated by the Bush administration. ���In conception, it���s reasonably well designed; the question is in the execution,��� said Randal Quarles, a former Treasury undersecretary who now works at the Carlyle Group in Washington. ���There are a lot of details that remain to be worked out in pushing things in these two directions.���
Since the Treasury���s $700 billion bank-rescue package was approved last October, regulators have had difficulty devising a pricing mechanism for the toxic securities. That complication, coupled with the potential cost, caused then-Treasury Secretary Henry Paulson to drop his effort to deal with the assets.
While the Obama administration considered creating a so-called bad bank to buy the assets, that idea was also scrapped in favor of a public-private partnership. Private investment managers would run the funds that purchase the securities, in a program that may reach $1 trillion with government financing.
Regulators aim to use the stress tests they began last month on the 19 biggest US banks, and any ensuing injections of Treasury funds, to encourage them to write down the illiquid assets from the levels on their books, according to people familiar with the government���s discussions.
ADVERTISEMENT
The reviews, which include assessments of how much more capital lenders may need to weather the economic downturn, are scheduled to be completed by the end of April.
Download
The Economic Times Business News App for the Latest News in Business, Sensex, Stock Market Updates & More.
The Economic Times Business News App for the Latest News in Business, Sensex, Stock Market Updates & More.
Download
The Economic Times News App for Quarterly Results, Latest News in ITR, Business, Share Market, Live Sensex News & More.
The Economic Times News App for Quarterly Results, Latest News in ITR, Business, Share Market, Live Sensex News & More.
ADVERTISEMENT
