Bair: “Aggregator Bank” Idea Past Hypothetical Stage
by Tim Manni
“It’s beyond hypothetical. I think all of the agencies are committed to coming up with a program for troubled asset relief,” said FDIC Chairman Sheila Bair in a recent interview with the Wall Street Journal. Bair was responding to a question regarding the status of recent talks between several federal agencies regarding the need to get troubled assets off the books of financial institutions via an “aggregator bank.”
How would such a bank work?
“The idea here is that the aggregator bank would buy the assets at fair value,” said Bair.
“The idea would be to set up a facility, it could be structured as a bank, to capitalize it with some portion of the TARP funds. Financial institutions that wanted to sell assets into the bank could also perhaps take part of their payment as an equity interest in the aggregator bank to provide an additional cushion.”
“With a combination of private equity contributions plus tarp capital, I think you could leverage that into some fairly significant volume to purchase assets.”
What would this “aggregator bank” do with the troubled assets?
“The aggregator bank could use multiple tools. It might want to hold some of the assets. It might make sense to just hold them for a while. You might want to securitize some of them. You could do a covered bond issue,” said Bair.
Why have Federal agencies resumed talks regarding the importance of developing strategies to address troubled assets?
“I think everybody agrees it’s important to provide some troubled asset relief, because I think it’s key to getting private equity capital back into banks. They need to have some certainty about what the tail risk is on some of these assets. By doing the insurance wrap or providing a bank to just get them off the balance sheet complete, I think that would help us get some private capital back into banks,” said Bair.
Click here to read the Journal’s complete interview with FDIC Chairman Sheila Bair.
This doesn’t make too much sense to us — please feel free to inform us if this makes sense to you.
