Uncle Sam wants insurers to help buy problem loans and securities out of the portfolios of banks and other financial institutions.
The Treasury Department says it will contribute $75 billion to $100 billion in Troubled Asset Relief Program capital to encourage private investors – including insurance companies and pension funds — to buy troubled “legacy loans” and troubled “legacy securities.”
The department seems to assume that the Legacy Loans Program will buy troubled loans mainly from banks, but it seems to be hinting in a fact sheet describing the new “Public-Private Investment Program” that the Legacy Securities Program will buy troubled securities from other types of companies as well as from banks.
The troubled securities to be helped by the program “are held by banks as well as insurance companies, pension funds, mutual funds, and funds held in individual retirement accounts,” Treasury officials write in the fact sheet.
Legacy Loans Program
The FDIC is supposed to start the Legacy Loans Program by creating a family of Public-Private Investment Funds.
The Treasury Department will own half of the stock in the funds, and “private capital” will own the other half. “The participation of individual investors, pension plans, insurance companies and other long-term investors is particularly encouraged,” officials say.
The funds will try to increase demand for troubled bank loans, and to help banks and investors determine the true market value of the loans, by buying pools of whole loans from banks.
To sweeten the deal, the FDIC will guarantee the debt financing issued by the Public-Private Investment Funds to fund the loan purchases, officials say.
Although the Treasury Department will own half of each fund’s stock, “private managers will retain control of asset management subject to rigorous oversight from the FDIC,” officials say.
The Legacy Securities Program
The other new Treasury Department program, the Legacy Securities Program, will give financial services companies a chance to help manage Legacy Securities Investment Funds.
The funds will support “the market for legacy mortgage- and asset-backed securities
originated prior to 2009 with a rating of AAA at origination,” officials say.