The Treasury Department should consider expanding programs to cleanse troubled assets from bank balance sheets if current efforts fail to restart markets or if economic conditions deteriorate, a U.S. bailout watchdog panel has said. According to Reuters, the Congressional Oversight Panel reported that toxic loans and securities continue to pose a threat to the financial system, particularly for smaller banks that face mounting losses on commercial real estate loans. These banks may need similar stress tests and capital support afforded to larger institutions, the panel added. It also advocated that stress for the largest 19 institutions be repeated if the economy worsens beyond the worst-case assumptions used in initial tests conducted in April. Despite improved financial market conditions, the panel said a “continuing uncertainty is whether the troubled assets that remain on bank balance sheets can again become the trigger for instability. Treasury must assure robust legacy securities and legacy loan programs or consider a different strategy to do whatever can be done to restart the market for those assets.” The report comes as the Treasury is preparing to launch a significantly scaled-down version of its toxic asset program, a series of public-private investment funds to purchase toxic mortgage securities with $30 billion in government subsidies.
Bailout Panel Calls for More Toxic Assets Support
The Congressional Oversight Panel reported that toxic loans and securities continue to pose a threat to the financial system, particularly for smaller banks that face mounting losses on commercial real estate loans.
August 11, 2009