The Federal Deposit Insurance Corporation (FDIC) on June 3 “formally” announced that development of the Legacy Loans Program (LLP) will continue, but that a previously planned pilot sale of assets by open banks will be postponed. In making the announcement, Chairman Bair stated, “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. 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.” As a next step, the FDIC indicated that it will test the funding mechanism contemplated by the LLP in a sale of closed bank receivership assets this summer. According to the FDIC, the “funding mechanism draws upon concepts successfully employed by the Resolution Trust Corporation in the 1990s, which routinely assisted in the financing of asset sales through responsible use of leverage.” The FDIC expects to solicit bids for this sale of receivership assets in July. It is unclear why the FDIC chose to categorized its announcement as formal, as opposed to informal, and whether and when, if ever, the LLP will be launched for open banks.
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FDIC statement on status of Legacy Loans Program
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