Banks want G20 to set up pricey bad bank

Marketwatch ^ | March 13, 2009 7:54 p.m. EDT | Greg Robb, MarketWatch

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Critics say the financial sector is holding the economy hostage

WASHINGTON (MarketWatch) -- The world's largest financial institutions urged the G20 financial leaders on Friday to endorse the "bad bank" approach to dealing with the credit crisis, an expensive model one expert likened to another ransom note.

The request came in a letter to U.K. Prime Minister Gordon Brown from the Institute of International Finance, a trade group of the world's largest global banks. The IIF wants Brown and his G20 colleagues to push the Obama administration in the direction of setting up a bad bank.

Under this approach, governments would buy toxic assets from banks at a price higher than the prevailing market rates. For the time being, private investors simply won't buy the assets at the prices that the banks want. As a result, banks have huge holes in their balance sheets.

Last month, Treasury Secretary Timothy Geithner seemed headed in the direction of establishing a bad bank, but veered off at the last minute.

Instead, Geithner has proposed a public-private fund to get toxic assets off banks' books. Details of the plan remain murky; Geithner's apparent change of heart also was greeted with a sharp sell-off in the stock market.

Vince Reinhart -- an outspoken former Federal Reserve official who's made no secret of his disappointment with the plans so far to end the crisis -- said what the Treasury secretary really was trying to do was avoid having to go back to Congress for more money.

Indeed, legislators have been signaling that they're not eager to receive a request for additional funds for banks on top of the $700 billion financial-rescue plan approved last fall.

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Another International group...and a news item....just today:

Former BoC chief Dodge named to global bank group

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Fri Mar 13, 2009 1:52pm EDT

OTTAWA, March 13 (Reuters) - Former Canadian central bank chief David Dodge will co-chair a group that will act as an early warning system for risk in the global financial system.

The Institute of International Finance (IIF), which represents many of the world's largest banks, announced the creation of the "market monitoring group" on Friday.

Dodge, who stepped down as Bank of Canada governor in early 2008, will head the group along with Jacques de Larosiere, former managing director of the International Monetary Fund and former governor of the Bank of France.

Dodge's job will be to try to prevent crises through early detection of dangerous practices or trends in the financial system and then to alert industry officials and policymakers before the problem escalates.

"Looking back at the origins of today's crisis there is no doubt that many financial institutions underestimated the scale of risks and the potential scope of the threats to the stability of the financial system," said IIF Managing Director Charles Dallara.

The IIF urged world leaders on Friday to take stronger action to stabilize financial markets, including internationally coordinated regulatory reform.

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Report from another International Banking Group....FR Thread:

BIS Quarterly Review, December 2008 ( Global Financial Information )

Bank for International Settlements

[4rcane]

How about create a new bank called “The Good Bank” and move all the good assets there and let all the bad assets remain in the old banks and let them fall

[Ernest_at_the_Beach]

LOL!

[Tempest]

Ohhh for goodness sakes the pirates demand their next scheme.

[OCC]

Dodge's job will be to try to prevent crises through early detection of dangerous practices or trends in the financial system and then to alert industry officials and policymakers before the problem escalates.

Nobody had that job before? I assumed the SEC or some other agency was supposed to provide that function.

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The SEC is a US agency...couldn't even watch the US very well...see Madoff...and friends...and Stanford in Antigua.