Treasury Selling as Much as $1 Trillion in Bank Assets With Fed and FDIC

By Mike Caggeso
Associate Editor
Money Morning

The U.S. Treasury Department's is pressing the go button on its Public-Private Investment Program and re-expanding the $1 trillion Term Asset-Backed Securities Loan Facility (TALF). 

Treasury Secretary Timothy Geithner said to the Senate Banking Committee that he expects the programs to start by early July, Bloomberg reported.

"Working with the Federal Reserve and the FDIC, we expect these programs to begin operating over the next six weeks," Geithner said in prepared testimony.

The Public-Private Investment Program is a coordinated effort with the Federal Reserve and Federal Deposit Insurance Corp. (FDIC) to help banks sell as much as $1 trillion in distressed mortgages and other assets.

Announced in March, the Public-Private Investment Program will be funded with $75 billion to $100 billion of U.S. Federal Reserve and Federal Deposit Insurance Corp. (FDIC) debt guarantees, as well as the funds remaining in the U.S. Treasury Department's Troubled Asset Relief Program (TARP).

Geithner is betting this plan will finally establish market values for the toxic debt left over from the U.S. housing bust, and that getting the private market involved will minimize the risk that taxpayers will overpay for assets.

"Leverage has declined, the most vulnerable parts of the non-bank financial system no longer pose the same risk, and banks are funding themselves more conservatively," he said.

TALF Expanded, TARP Reserves Revised 

Earlier this week, the Federal Reserve announced it would add older real estate to TALF. And Geither reiterated that the Treasury and Fed intend to expand programs to help asset-backed securities markets, such as TALF, Bloomberg reported.

"The Treasury and the Federal Reserve will continue to monitor and enhance the ABS programs to bring in new, more niche asset classes and make sure that the number of eligible borrowers and issuers continues to increase," Geithner said.

In late March, the Federal Reserve kicked up TALF's capacity from $200 billion to $1 trillion and began accepting mortgage-related securities as loan collateral.

Geithner also said the Treasury has about $124 billion of the $700 billion Troubled Asset Relief Program (TARP) left, $11 billion less than his previous estimate in March. He also said he expects about $25 billion to be repaid over the next year.

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