Slicing the Toxic Pizza: An Analysis of FDIC’s Legacy Loan Program for Receivership Assets
University of Louisiana at Lafayette - College of Business Administration
September 21, 2009
International Journal of Monetary Economics and Finance, Vol. 3, No. 3, pp. 300-309, 2010
The Legacy Loans Program is an elaborate way of slicing the FDIC’s receivership assets. At best, the financial structure is irrelevant to the FDIC’s expected long-run recovery rates. Yet, it may boost short-term prices by creating bond insurance liabilities that will come due several years down the road. If the private investor can increase the value of the toxic loans through non-contractible investments, then the public equity stake and subsidized leverage may hinder the FDIC from obtaining the best recovery rates from these troubled loan portfolios.
Number of Pages in PDF File: 19
Keywords: FDIC, PPIP, toxic assets, Legacy Loans Program, LLP, Public-Private Investment Partnership, financial crisis, banking
JEL Classification: G01
Date posted: September 22, 2009 ; Last revised: April 15, 2012
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