Public/private partnerships to buy toxic assets

School of Law Professor Cornelius Hurley, director of the Morin Center for Banking and Financial Law and former counsel to the Fed Board of Overseers, says Treasury’s plan to buy up toxic bank assets is thin on inducements for private investors to get involved.

“It appears that the plan is going to be very heavy on the use of public funds and very light in inducing private parties to participate.  For the plan to be successful, two elements are essential.  First, there must be robust financial inducements for private pools of funds to participate on a significant scale.  Second, banks must be required to part with assets that they are carrying at unreasonable values.

“Early indications are that the funds for the program are going to come largely from the taxpayers and that the banks will be free to offer up their dregs for sale and, even then, to resist sales that will negatively impact their capital.  The Treasury and the FDIC already have the tools needed to deal with thinly capitalized banks.  It’s called receivership.”

Contact Cornelius Hurley, 617-353-5427, ckhurley@bu.edu

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