The Federal Deposit Insurance Corp.'s (FDIC) effort to sell troubled bank loans is facing headwinds, including congressional skepticism about the public-private investment funds that would provide government financing for investors, according to agency chairman Sheila Bair.
"We are finding both on the buyer and seller side there continues to be discomfort about Congress' review of this program," Bair told reporters. There are concerns the Congress "could potentially change" the rules, she added.
The FDIC chairman also noted that Congress has passed a housing bill (S. 896) that directs the Treasury secretary to craft conflict of interest rules for the PPIF program.
Critics of the program are concerned sellers and buyers of the bad assets could game the system and make large profits at the expense of taxpayers. "Banks will not be able to bid on their own assets," the FDIC chairman said.
However, Treasury needs to clarify other aspects of the conflict of interest rules mandated by Congress. FDIC is working on the structure of its 'Legacy Loan Program' that will give banks an opportunity to sell troubled real estate loans to PPIF investors. However, a "test sale" may be delayed.
"Obviously there are issues we have to look at and take into consideration," an FDIC spokesman said. FDIC has been working toward sending the first sales packages to investors in June.