Postponing PPIP
Investors will have to wait longer than expected for the Legacy Loans Program (LLP), the FDIC half of the Public Private Investment Program (PPIP) to relieve banks of their troubled assets. The LLP pilot, which the FDIC had originally planned to launch in June, will now be postponed indefinitely. In its place, however, the FDIC plans to “test the funding mechanism contemplated by the LLP” by selling receivership assets. The FDIC says it will draw “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 says it will “solicit bids for this sale of receivership assets in July.”
While FDIC Chairman Sheila Bair said the FDIC will continue to work on developing the legacy loans program in order to “offer it in the future,” she explained the reason for the postponement was that banks lately have been raising capital without it, reflecting “renewed investor confidence in our banking system.” She went on to say, “As a consequence, banks and their supervisors will take additional time to assess the magnitude and timing of troubled asset sales as part of our larger efforts to strengthen the banking sector.”
There was no mention whether or not the Legacy Securities Program, which is managed by the Federal Reserve and Treasury, would be delayed. One could reasonably guess, reading between the lines, that banks have been less than enthusiastic about discounting and selling loans through the LLP.
