FDIC Suspends Toxic Asset Plan

A preliminary plan to sell toxic assets is put on hold because of better banking stability and investor fears.
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It's been rumored for some time, and the FDIC finally pulled the plug... for now.

The FDIC backed away Wednesday from a pilot plan to sell toxic assets in June through its "Legacy Loans Program," which, as part of the larger Public-Private Investment Program, was to offer cheap financing to potential investors in the troubled assets, thus removing the toxicity from bank balance sheets.

But reports have been swirling for weeks that the FDIC has found it difficult to find willing buyers and partners to join it in the program. With the heightened regulatory fever in Washington, many potential investors felt that the program's rules could change midstream if Wall Street's approval ratings dropped any lower on Main Street.

The FDIC was quick to attribute the postponement to the recent wave of capital raising and increasing stability in the banking sector. Many banks proved their worth to the market without first clearing troubled assets off their books.

"Banks have been able to raise capital without having to sell bad assets through the LLP, which reflects renewed investor confidence in our banking system," FDIC Chair Sheila Bair said in a release. "As a consequence, banks and their supervisors will take additional time to assess the magnitude and timing of troubled assets sales as part of our larger efforts to strengthen the banking sector."

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