The Show Must Go on for Legacy Loans

The Legacy Loans Program (LLP), a big part of the Public-Private Investment Program designed to attract private capital to buy up toxic — or so-called “legacy” — loans faced its share of doubts as regulators shuffle programs to find the right balance between investment programs.

On the heels of questions late last week over whether the LLP would be shuttered entirely, the Federal Deposit Insurance Corp. (FDIC) today acknowledged a previously planned pilot sale of assets by open banks will be postponed.

The program itself, however, will continue despite the setback.

“Banks have been able to raise capital without having to sell bad assets through the LLP, which reflects renewed investor confidence in our banking system,” says FDIC chairwoman Sheila Bair in a media statement today. “As a consequence, banks and their supervisors will take additional time to assess the magnitude and timing of troubled assets sales as part of our larger efforts to strengthen the banking sector.”

FDIC will test the funding mechanism — modeled after that used by the Resolution Trust Corp., which operated from the late 80s to early 90s — set forth by the LLP in the sale of receivership assets during the summer. The FDIC plans to solicit bids for the receivership asset sale in July.

“The FDIC will continue its work on the LLP and will be prepared to offer it in the future as an important tool to cleanse bank balance sheets and bolster their ability to support the credit needs of the economy,” Bair adds.

Write to Diana Golobay.

Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments.