While the cost of a setting up a government-run "bad bank" has appeared daunting, Geithner is likely to offer incentives to lure private investors to buy distressed assets.
"It can't all be private capital," Lawrence Summers, the head of the White House National Economic Council, told Fox News television on Sunday. "But with the right kinds of government guarantees, with the right kinds of financing ... with the right strategic approaches, Secretary Geithner believes that we can bring in substantial private capital."
A source familiar with the administration's thinking said a "bad bank" financed in part by private equity was indeed under discussion. To lure private investors, the bank could be allowed to issue debt backed by the Federal Deposit Insurance Corp, the source said.
The "bad bank" would provide a repository that would take assets off bank balances sheets, hopefully making it easier for them to attract private capital and increase lending. The assets could be held for several years until economic conditions improve.
Resource: http://www.reuters.com/article/politicsNews/idUSTRE5186M020090209
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