Toxic-Loan Plan Test on Hold with Few Participating

By Joe Adler


A test run of the government’s bad-loan removal plan has been shelved as officials struggle to attract both sellers and buyers.The Federal Deposit Insurance Corp. had planned the test of its Legacy Loans Program for June, but a host of issues have arisen, including congressional restrictions on participants and the persistent challenge of pricing loans to be disposed through government auctions. Moreover, a consensus is growing that as bank capital positions improve and the values of some written-down assets bounce back, the need for the program has subsided. As a result, sources say, the FDIC has put the test on hold and the program could be scrapped. “It doesn’t feel like a priority at this point,” said an industry representative who asked not to be identified. “I’m not sensing as much of a need on the part of the banking industry for this kind of a program. A lot of the banks have already written down all of these assets.” It is possible the whole-loan program will be recast on a smaller scale. “There is still a very, very strong push by the FDIC, Treasury and the Fed to make this work,” said Karen Shaw Petrou, the managing partner for Federal Financial Analytics Inc.