On June 3, 2009, the FDIC announced a postponement of the Legacy Loans Program component of the Public Private Investment Partnership for open banks to sell loans.  Formally, development of the Legacy Loans Program will continue, but the previously planned pilot sale of assets by open banks will be postponed.  Accordingly, the government is once again exploring whether the purchase of troubled assets should be part of the Troubled Asset Relief Program.  The federal government appears to have now completed a 540 degree rotation under the Troubled Asset Relief Program. Observers are keen to determine whether the government will land an unprecedented 720, possibly earning an X Games gold medal in the process.

Chairman Bair explained, “Banks have been able to raise capital without having to sell bad assets through the Legacy Loans Program, which reflects renewed investor confidence in our banking system. As a consequence, banks and their supervisors will take additional time to assess the magnitude and timing of troubled assets sales as part of our larger efforts to strengthen the banking sector.”

As a next step, the FDIC will test the funding mechanism contemplated by the Legacy Loans Program in a sale of receivership assets this summer.  This funding mechanism draws upon concepts successfully employed by the Resolution Trust Corporation in the 1990s, which routinely assisted in the financing of asset sales through responsible use of leverage. The FDIC expects to solicit bids for this sale of receivership assets in July.