US to invite private investors to buy troubled assets

12 March 2009

The US administration's plan to strip banks of troubled assets could force some firms to record large losses, but the move would help restore confidence in the banking system, said Sheila Bair, chairwoman of the Federal Deposit Insurance Corp (FDIC) on Tuesday.

Bair told in an interview to the Washington Post that the cost might exceed the $700 billion Congress approved to bail out the US financial system and that the greatest challenge is persuading banks and taxpayers to accept the necessity of the costly programme.

"This takes courage to do, but if we don't do it, history shows that this kind of mechanism -recognise the losses, get at the root of it and move on - this is how you jump-start the economy," she said in a discussion with the newspaper. "The other option, just to park those assets on the balance sheet, I don't think that gets us very far."

The US government also plans to invite private investors to buy troubled assets, in part by providing financing at low cost, the report said. However, the extent of the federal subsidy was still under discussion.

The administration hopes to find the right balance and announce the details within the next two weeks.

Bair told the newspaper that the original plan to buy troubled assets faltered in part because of concerns about the cost.