Slicing the Toxic Pizza: An Analysis of FDIC’s Legacy Loan Program for Receivership Assets
International Journal of Monetary Economics and Finance, Vol. 3, No. 3, pp. 300-309, 2010
19 Pages Posted: 22 Sep 2009 Last revised: 15 Apr 2012
Date Written: September 21, 2009
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.
Keywords: FDIC, PPIP, toxic assets, Legacy Loans Program, LLP, Public-Private Investment Partnership, financial crisis, banking
JEL Classification: G01
Suggested Citation: Suggested Citation