Toxic Asset Threat Remains, Despite TARP

Toxic Asset Threat Remains, Despite TARP - 8/11/2009

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HEADLINES \| SETTLEMENTS AND DISMISSALS \| COURT FILINGS LINKS TO OTHER NEWS \| NEWS ARCHIVE	HEADLINES ARCHIVED SETTLEMENTS AND DISMISSALS ARCHIVED

HEADLINE NEWS:

Toxic Asset Threat Remains, Despite TARP
Jessica Dye

Securities Law 360. August 11, 2009
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EXCERPT: Ten months into the government's Troubled Asset Relief Program, the Congressional Oversight Panel on Tuesday reported that substantial portions of toxic assets remain on banks' books, posing a financial threat and leaving small banks especially vulnerable to future failure. In its monthly update tracking the $700 billion committed by the federal government under TARP to prop up financial institutions, the Congressional Oversight Panel suggested the U.S. Department of the Treasury recalibrate its planned trillion-dollar Public-Private Investment Program in order to get remaining toxic securities off banks' books and jump-start a planned loan purchase program postponed by the Federal Deposit Insurance Corp. If unemployment levels keep rising and the commercial real estate market keeps faltering, the panel said, banks' troubled mortgage-backed assets will keep deteriorating in value, leaving the financial system “vulnerable to the crisis conditions that TARP was meant to fix.” Most TARP aid has come in the form of capital equity purchases, rather than supporting transactions to buy toxic assets from banks. While that has managed to keep most major banks from buckling, it still leaves them with major portions of their toxic asset problems, according to the panel, chaired by Harvard Law School professor Elizabeth Warren. “The crisis was years in the making, and it won't be resolved overnight,” the report stated. “But we are now 10 months into TARP, and troubled assets remain a substantial danger to the financial systems.” Judging just how many of the troubled assets remain with banks is difficult, the panel said. But their numbers are growing, as defaults grow at an unprecedented rate and existing loans' value deteriorates. Of the $7.7 trillion in loans and leases at all U.S. banks in March 2009, the panel found, 7.75 percent showed signs of distress — a total of $596.75 billion.

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