The Bad Bank Is Back!


The reports of the death of Sheila Bair’s bad bank were greatly exaggerated, it seems.

From CNBC:

Talks continue between the Obama administration and financial industry representatives over a plan to further ease the credit crunch, including a so-called ‘bad bank’ component to buy toxic assets. If progress continues to be made an announcement is likely late next week, according to a source familiar with the discussions.

That no longer appears to the case. The talks are said to have yielded agreement that the FDIC would run the bad bank, according to a source. That scenario has been widely speculated, especially since FDIC Chairwoman Sheila Bair has been a leading proponent of the bad bank concept. She had already essentially volunteered to have the banking supervision agency administer the program, which it did 15 year ago with a similar program meant to ease the savings and loan crisis.

“It’s not a 100 per cent, but its where they are now,” said the industry source, adding that Thursday could be the announcement day.

The Obama administration’s point person on the bad bank concept at this point appears to be Lawrence Summers, director of the National Economic Council.