The controversial US toxic asset clean-up plan, aimed at clearing bad loans from US banks’ books to enable them to raise capital and lend freely, has fallen behind schedule, and may never be fully implemented.
“Banks have been able to raise capital without having to sell bad assets through the LLP [limited liability partnership], which reflects renewed investor confidence in our banking system,” Sheila Bair, chairman of the FDIC, said last week.
I myself have lost track of the schedule that was supposed to be followed. The thing is, if you have now institutions such as FDIC being less stringent on this requirement of actually offloading banks’ toxic assets, I wonder how it becomes possible for one to encourage the banks to sell their assets, which many of them probably didn’t even want to do right from the start? (What has happened to leadership?) Now this stress test seems to have really lost value. (Not that it looked highly valuable in the first place a month or so ago.) Now it looks as if the stress test and the results really were made public just to appease those who have been clamoring to have it.
The good side? Selling the assets now might fetch a higher value given the market rally we’ve seen within the past several months.