Fed, FDIC: Reconsider Tarp Asset Purchases

By Steven Sloan and Cheyenne Hopkins


Though the current administration has shut the door on using the Troubled Asset Relief Program to buy illiquid assets from banks, policymakers are increasingly turning to the idea again as other efforts to stem the financial crisis sputter. Top officials at the Federal Reserve Board and the Federal Deposit Insurance Corp. offered an outline Tuesday of how such a plan could be implemented, joining a chorus of industry representatives and other observers who argue it is the only way to stabilize the financial system. Momentum is building for such a plan, even though the key obstacle that led Treasury Secretary Henry Paulson to spike such a proposal last year — finding a way to establish prices for troubled assets — remains unresolved. Fed Chairman Ben Bernanke said Tuesday that the banking system cannot stabilize until a way is found to take illiquid assets off institutions’ books. But Karen Shaw Petrou, the managing director of Federal Financial Analytics Inc., said Mr. Bernanke’s suggestion to guarantee assets would be preferable. “The guarantee authorization that was in the law was the most straightforward and operationally facile way of liquefying the market,” she said.