Banks Get Scaled-Down Bad Asset Plan

Federal banking regulators on Wednesday unveiled a much smaller version of its original plan to kick start the market for banks' bad loans.

The Public-Private Investment Program, or PPIP, is now offering up to $30 billion in leverage to facilitate private-sector purchases of banks' legacy loan securities, just 3% of the original scope. In announcing the revised program, a trifecta of key banking regulators said the program was downsized because of improvements in the financial markets, but that it could be "quickly expanded" if necessary.

"While the programs will initially be modest in size, we are prepared to expand the amount of resources committed to these programs," the Treasury Department, Federal Reserve and Federal Deposit Insurance Corp. said in a statement.

The move was widely expected, as were some of the nine firms named as approved fund managers: AllianceBernstein, BlackRock (BLK Quote), Invesco, Marathon Asset Management, Oaktree Capital Management, RLJ Western Asset Management, The TCW Group, Wellington Management and a partnership between Angelo, Gordon & Co., and General Electric's (GE Quote) GE Capital Real Estate arm.

In apparent response to criticism that only large, high-profile firms would be able to participate, regulators also said the nine fund managers would be collaborating with 10 smaller companies with established reputations. Those include Advent Capital Management, Altura Capital Group, Arctic Slope Regional Corporation, Atlanta Life Financial Group, Blaylock Robert Van, CastleOak Securities, Muriel Siebert & Co., Park Madison, The Williams Capital Group and Utendahl Capital Management.

In practice, investors will have three months to raise at least $500 million to be matched by the Treasury for use in an individual "Public-Private Investment Fund," or PPIF. The funds can be used to buy commercial mortgage-backed securities and residential mortgage-backed securities that are not guaranteed by Fannie Mae (FNM Quote), Freddie Mac (FRE Quote) or another agency. The securities need to have been issued before 2009 and initially given the equivalent of a triple-A rating by at least two ratings firms.