Monday, March 23, 2009

Treasury Unveils Public-Private Investment Program

The U.S. Treasury Department released details on the "Public-Private Investment Program" earlier today. This two-pronged plan is intended to help financial institutions wipe distressed loans off their balance sheets in order to increase credit liquidity and enable these organizations to raise capital despite current market conditions.

Treasury Secretary contributed this Op Ed in today's Wall Street Journal justifying the "Public-Private Investment Program" and providing further detail.

The Treasury Department plans to use between $75 and $100 billion in capital from the Troubled Assets Relief Program (TARP) and capital from private investors to generate approximately $500 billion in purchasing power and buy legacy assets. With additional financing from the FDIC and Federal Reserve this program has the potential of leveraging $500 billion to expand to $1 trillion of purchasing power over time.

In order to clean bank balance sheets of troubled legacy loans, the Federal Deposit Insurance Corporation (FDIC) and Treasury plan to use half of the TARP resources allotted for this program to attract private capital to purchase eligible legacy loans from participating banks through the provision of FDIC debt guarantees and Treasury equity co-investment. The Legacy Loans Program will create individual public-private investment funds to purchase asset pools on a discrete basis. The Treasury Department and private capital will provide equity financing and the FDIC will guarantee debt financing issued by the Public Private Investment Funds – and provide oversight of these transactions - to fund asset purchases

The Legacy Securities Program is designed to jump start the market for legacy securities for a continued flow of credit and enabling banks to resume making credit card, automobile, student and small business loans once again. This program consists of two parts that are intended to draw private capital into these markets by providing debt financing from the Federal Reserve under the Term Asset-Backed Securities Loan Facility (TALF) and by matching private capital raised for dedicate funds targeting legacy securities.

The Treasury Department released this fact sheet about the Public-Private Investment Program. For more information, visit this Web site.

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