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Inside Washington (03/24/2009)
* WASHINGTON (3/25/09)--Fees charged to financial institutions in the Treasury’s program to relieve bad assets from banks’ balances sheets could actually bolster the Federal Deposit Insurance Corp.’s (FDIC) Deposit Insurance Fund, said FDIC Chairman Sheila Bair. Industry observers had questioned if the program would lead to higher insurance premiums--a claim that government officials said was unlikely. The FDIC’s reserves have dropped to $18.9 billion since the wave of bank failures. The agency would guarantee about $500 billion of debt for public or private funds that are buying the bad mortgage assets. It also would charge a fee for those funds, and the money would be placed into a reserve to build against future losses (American Banker March 23). The FDIC is seeking legislation that would give it more power to charge any assessment and include bank holding companies in the fees. Until a bill is passed, community banks are at risk, according to Chris Low, economist, FTN Financial. Community banks are upset because they are paying to bail out others even though they didn’t get involved with the “bad bets” ... * WASHINGTON (3/25/09)--Questions financial industry observers have about the Treasury’s plan to buy bad assets revolve around the auction process, which will be conducted by the Federal Deposit Insurance Corp. (FDIC). Observers ask if the agency would offer bids that are high enough to encourage bankers to sell illiquid assets (American Banker March 24). FDIC Chairman Sheila Bair said there is always risk, but that the structure has a better chance than other options she’s seen. Observers also asked Bair if banks would be forced to accept a price during bidding if they hesitated to participate. The process would be consultative, Bair said. Other unresolved questions include what loans are eligible for the program and how quickly the plan would be employed. The FDIC said it would soon release more details about the auction ... * WASHINGTON (3/25/09)--Concern over whether bad assets will remain on the Federal Reserve Board’s balance sheet permanently has been expressed by several financial industry observers. The Fed may be taking on risk by accepting the bad assets as loan collateral under the Term Asset-Backed Securities Loan Facility, but it’s a necessary evil, according to Kevin Jacques, former Treasury official (American Banker March 24). Cornelius Hurley, former Fed lawyer, said the Fed doesn’t have a history of dealing with bad assets and added he fears it will be stuck with them until the market improves. Peter Vinella, head of financial services at consulting firm LECG, said although some of the securities that were accepted as collateral after Jan. 1 have been downgraded, the Fed didn’t take on the worst assets--such as subprime mortgages ...


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