U.S. Considering Two-Part Bank Bailout
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According to reports from the Wall Street Journal, the U.S. is considering a two-part bank bailout. The plan involves buying a portion of banks' bad assets and offering guarantees against future losses on certain remaining assets.
The emerging plan was discussed in a recent meeting by new Treasury Secretary Timothy Geithner, Federal Reserve Chairman Ben Bernanke and FDIC Chairman Sheila Bair.
Under the concept being discussed, the government "bad bank," possibly run by the FDIC, would buy only assets banks have already marked down heavily. This could avoid crushing the value of other assets held by banks. The remaining troubled assets -- likely a sizable amount -- would be covered by a type of insurance against future losses. This would apply to mortgages, mortgage-backed securities and other loans that banks are holding until they mature. Banks have probably given these assets an overly optimistic value because they plan to hold them.
The emerging plan was discussed in a recent meeting by new Treasury Secretary Timothy Geithner, Federal Reserve Chairman Ben Bernanke and FDIC Chairman Sheila Bair.
Under the concept being discussed, the government "bad bank," possibly run by the FDIC, would buy only assets banks have already marked down heavily. This could avoid crushing the value of other assets held by banks. The remaining troubled assets -- likely a sizable amount -- would be covered by a type of insurance against future losses. This would apply to mortgages, mortgage-backed securities and other loans that banks are holding until they mature. Banks have probably given these assets an overly optimistic value because they plan to hold them.
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