By Karey Wutkowski
WASHINGTON, March 21 (Reuters) - The U.S. Treasury Department will roll out a three-part plan next week to try to cleanse the U.S. financial system of toxic assets that are clogging banks' balance sheets, a source familiar with the plan said on Saturday.
Key elements include setting up an entity that the Federal Deposit Insurance Corp will use to offer low-interest rate loans to private interests for buying up banks' soured assets, many of which are tied to mortgages and have tumbled in value, the source said.
Treasury will also hire outside investment managers to run public-private partnerships that could invest for potential profit in troubled mortgages, with government capital matching private capital contributions, according to the source.
Finally, the Federal Reserve will expand its Term Asset-Backed Securities Loan Facility, known as TALF, to also buy so-called 'legacy' assets, the source said.
Treasury coined the term to describe older securities that have been causing stress to the banking system and that have not been eligible for the TALF before.
The keenly awaited program to remove toxic assets from bank balance sheets -- a move that is generally considered vital to encouraging banks to resume normal lending -- will be seeking to enlist private-sector support at an especially tough time.
The past week has seen a heated backlash over bonus payments to employees of American International Group that analysts warn may make hedge fund managers and other managers of private wealth skittish about any government involvement.
'Congress is a rat's nest of grandstanding right now,' said Jack Ablin, chief investment officer with Harris Private Bank in Chicago. 'If Congress continues to dig its heels in, it will contribute to the destabilization of the financial system.'
It remained unclear exactly when Treasury Secretary Timothy Geithner, who has been under fire himself for his role in failing to block AIG bonuses, will roll out the three-pronged remedy for getting rid of toxic assets.
Indications were that Treasury would like to see the furor over AIG bonuses die down before it launches its new toxic assets plan. The risk is that lawmakers, already angry over the AIG bonuses, might turn their wrath on the new proposals.
A week ago, senior Treasury officials had said their plan would be published this week but it appeared that was overcome by the huge swell of protest that followed disclosure of the AIG bonus payments.
(Reporting by Karey Wutkowski, with additional reporting by Rachelle Younglai and Richard Leong in New York, writing by Glenn Somerville, editing by Vicki Allen) Keywords: FINANCIAL/BAILOUT (glenn.somerville@thomsonreuters.com; +1-202-898-8377; Reuters Messaging: glenn.somerville.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
WASHINGTON, March 21 (Reuters) - The U.S. Treasury Department will roll out a three-part plan next week to try to cleanse the U.S. financial system of toxic assets that are clogging banks' balance sheets, a source familiar with the plan said on Saturday.
Key elements include setting up an entity that the Federal Deposit Insurance Corp will use to offer low-interest rate loans to private interests for buying up banks' soured assets, many of which are tied to mortgages and have tumbled in value, the source said.
Treasury will also hire outside investment managers to run public-private partnerships that could invest for potential profit in troubled mortgages, with government capital matching private capital contributions, according to the source.
Finally, the Federal Reserve will expand its Term Asset-Backed Securities Loan Facility, known as TALF, to also buy so-called 'legacy' assets, the source said.
Treasury coined the term to describe older securities that have been causing stress to the banking system and that have not been eligible for the TALF before.
The keenly awaited program to remove toxic assets from bank balance sheets -- a move that is generally considered vital to encouraging banks to resume normal lending -- will be seeking to enlist private-sector support at an especially tough time.
The past week has seen a heated backlash over bonus payments to employees of American International Group that analysts warn may make hedge fund managers and other managers of private wealth skittish about any government involvement.
'Congress is a rat's nest of grandstanding right now,' said Jack Ablin, chief investment officer with Harris Private Bank in Chicago. 'If Congress continues to dig its heels in, it will contribute to the destabilization of the financial system.'
It remained unclear exactly when Treasury Secretary Timothy Geithner, who has been under fire himself for his role in failing to block AIG bonuses, will roll out the three-pronged remedy for getting rid of toxic assets.
Indications were that Treasury would like to see the furor over AIG bonuses die down before it launches its new toxic assets plan. The risk is that lawmakers, already angry over the AIG bonuses, might turn their wrath on the new proposals.
A week ago, senior Treasury officials had said their plan would be published this week but it appeared that was overcome by the huge swell of protest that followed disclosure of the AIG bonus payments.
(Reporting by Karey Wutkowski, with additional reporting by Rachelle Younglai and Richard Leong in New York, writing by Glenn Somerville, editing by Vicki Allen) Keywords: FINANCIAL/BAILOUT (glenn.somerville@thomsonreuters.com; +1-202-898-8377; Reuters Messaging: glenn.somerville.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.