July 08, 2009
Parsing the PPIP Announcement
Posted by David Zaring

The announcement today that the financial regulators have finally moved to level two on the plan to partner with private entities to purchase distressed assets from banks has long been awaited.  And with ten potential buyers, the question is: will any bank be willing to sell (and then mark its assets down accordingly)?

Still unclear.  What is clear is that this is one of those programs by committee that we will have to get used to if there is, in fact, regulatory reform centered around a committee of regulators, as the Obama Administration has proposed. 

What do you get by being a designated PPIF - that is, one of those ten potential buyers?  "Treasury will ... provide debt financing up to 100% of the total equity of the PPIF.  In addition, PPIFs will be able to obtain debt financing raised from private sources, and leverage through the Federal Reserve’s and Treasury’s Term Asset-Backed Securities Loan Facility (TALF), for those assets eligible for that program, subject to total leverage limits and covenants."  So the government doubles however much you raise over the next 12 weeks.

The FDIC meanwhile, will help move some assets into SIVs for purchase.  This may be done so TARP money - and TARP executive compensation rules - aren't involved with some asset purchases (but also because of FDIC expertise in working with distressed assets, its pool of money, etc, etc).  We haven't heard whether Treasury thinks the PPIFs have to compliy with TARP compensation rules.  I bet Treasury doesn't want them to be.  But I haven't yet heard a good reason why they legally wouldn't be.  Doesn't mean there isn't one.  But it would be nice if Treasury - or someone - produced it.

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