Troubled assets tied to the housing market remain frozen on banks' balance sheets and pose a continued threat to economic recovery, according to a new oversight report.
Elizabeth Warren, chairwoman of the Congressional Oversight Panel charged with ensuring that bailout funds are used properly and efficiently, said in her report that efforts to move housing-related derivatives off banks' books have mostly failed.
"The nation's banks continue to hold on their books billions of dollars in assets about whose proper valuation there is a dispute and that are very difficult to sell," Warren wrote.
The panel pointed to setbacks in implementing the Public Private Investment Program, a government program to help banks unload the assets, as a leading contributing factor.
The segment of it administered by the Treasury has only recently got off the ground, the panel noted, while the Federal Deposit Insurance Corp. has postponed its own effort, citing improved liquidity in the credit markets.
Estimates vary as to the amount of toxic assets that have yet to be written down. The Federal Reserve Bank has estimated their value at $599 billion, while Goldman Sachs Group Inc. and the International Monetary Fund placed the value at approximately $1 trillion, the New York Times reported.
Warren warned that the failure to get the troubled assets off the banks' books means "the financial system remains vulnerable to the crisis conditions" the Troubled Asset Relief Program, the master bailout initiative, was intended to resolve.
"If the economy worsens, especially if unemployment remains elevated or if the commercial real estate market collapses, then defaults will rise and the troubled assets will continue to deteriorate in value," Warren wrote.
According to Warren, larger banks would probably survive such a crisis, but smaller and medium-sized ones would face significant losses forcing them to raise as much as $21 billion to stay afloat.
Elizabeth Warren, chairwoman of the Congressional Oversight Panel charged with ensuring that bailout funds are used properly and efficiently, said in her report that efforts to move housing-related derivatives off banks' books have mostly failed.
"The nation's banks continue to hold on their books billions of dollars in assets about whose proper valuation there is a dispute and that are very difficult to sell," Warren wrote.
The panel pointed to setbacks in implementing the Public Private Investment Program, a government program to help banks unload the assets, as a leading contributing factor.
The segment of it administered by the Treasury has only recently got off the ground, the panel noted, while the Federal Deposit Insurance Corp. has postponed its own effort, citing improved liquidity in the credit markets.
Estimates vary as to the amount of toxic assets that have yet to be written down. The Federal Reserve Bank has estimated their value at $599 billion, while Goldman Sachs Group Inc. and the International Monetary Fund placed the value at approximately $1 trillion, the New York Times reported.
Warren warned that the failure to get the troubled assets off the banks' books means "the financial system remains vulnerable to the crisis conditions" the Troubled Asset Relief Program, the master bailout initiative, was intended to resolve.
"If the economy worsens, especially if unemployment remains elevated or if the commercial real estate market collapses, then defaults will rise and the troubled assets will continue to deteriorate in value," Warren wrote.
According to Warren, larger banks would probably survive such a crisis, but smaller and medium-sized ones would face significant losses forcing them to raise as much as $21 billion to stay afloat.
published August 11, 2009, 0 Comments
Leave a comment