Financial Rescue Plan Includes Aggregator Bank, Expansion of Fed Faculties

By: •

A U.S. government financial rescue plan to be unveiled on Tuesday includes provisions for the setting up of an entity to purchase toxic assets from the banking system, fresh capital injections for banks, new homeowner aid programs and the expansion of the Fed's Term Asset-Backed Securities Loan Facility, the Wall Street Journal Reported Monday.

Citing sources familiar with the plan, the Wall Street Journal said it includes a government partnership with the private sector to purchase toxic assets though the creation of so-called aggregator bank.

While many have viewed the entity as a type of 'bad bank', the main difference is that both government and the rescued firm will bear some of the risk in the transaction to ensure that the U.S. taxpayer does not overpay for the toxic debt.

According to CNBC's Steve Liesman, the entity could purchase up to $500 billion in toxic assets.

The plan also includes between $50-$100 billion in aid, in the form of loan modifications for endangered homeowners.

Meanwhile, the Fed's Term Asset-Backed Securities Loan Facility will be expanded to include the purchase of additional assets, such as student loans, credit card debt and auto loans originally agreed upon.

The Journal also reported that the Federal Deposit Insurance Corporation may expand the range of debt it usually guarantees.

U.S. Treasury Secretary Tim Geithner was expected to unveil the details of the package on Monday, but U.S. President Barack Obama delayed the unveiling of the government plan in effort to provoke a faster Senate vote on the fiscal stimulus package, which failed to be voted on last week.

U.S. Senators continued to argue into the late hours on Friday, before hammering out an $817 billion fiscal stimulus plan. The package is expected to pass only by a narrow margin, with a final vote in the Senate expected on Tuesday. At that point, House and Senate leaders will have to meld their own version of the bill into one comprehensive piece of legislation. The legislation is hoped to reach the President's desk sometime next week.

By Erik Kevin Franco and edited by Stephen Huebl
©CEP News Ltd. 2009