US may create 'bad bank' to soak up toxic debt

US may create 'bad bank' to soak up toxic debt

The new US administration under President Barack Obama is looking at using the second tranche of the TARP fund to create a 'bad bank' that soaks up 'toxic debts' that are preventing US banks from lending. Bloomberg and the Wall St Journal reported that Obama's team are working on the plan to create an 'aggregator' bank that would either buy toxic debt from banks or insure the debt, essentially sharing the losses with banks.

The move appears a 'Back to the Future' solution, given the original Troubled Asset Relief Programme (TARP) put forward by outgoing Treasury Secretary Henry Paulson was rejected initially by Congress and then morphed into a pure bank equity injection vehicle. * This article was first published yesterday in our daily subscription newsletter for the banking and finance industries. The email costs NZ$365 per annum and carries exclusive news and analysis for New Zealand banking and finance industry executives, regulators and investors. Sign up for a free trial here.

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