Federal Deposit Insurance Corporation Chairman Sheila Bair said a plan to remove toxic real-estate assets from banks' balance sheets should help most lenders, although some institutions may be "beyond help".
"I do think there may be some banks beyond help," Bair said on a conference call with reporters today. "There are others that with this program, giving them the vehicle to cleanse their balance sheet and raise some fresh capital, I think we will help them."
Treasury Secretary Timothy Geithner unveiled a program today that may generate as much a $US1 trillion in financing to buy illiquid assets using $US75 billion to $US100 billion from the US bank rescue fund. The effort relies on a Federal Reserve partnership with private investors to buy the securities and FDIC guarantees to entice buyers, the government said.
Banks seeking to sell assets will submit pools of loans to the FDIC, which will determine a debt guarantee that may be as high as six times the equity provided. Those assets are auctioned to the higher bidder, and the Public-Private Investment Program would provide as much as half the funding needed for the purchase. The buyers will manage the assets until a final sale, which will be monitored by the FDIC.
The US is encouraging mutual funds, pension plans, hedge funds and other private investors to take part. Travelers Cos, the largest US insurer by market value, said it may buy from the program, and BlackRock, the biggest asset manager, said it will participate.
The FDIC will charge a fee for guarantees of purchased assets and the Treasury provides 50% of the equity capital for each pool of securities that are controlled by private fund managers.
US banks have suffered more than $845 billion in writedowns and credit losses since 2007 in the worst financial crisis in more than seven decades.
