Geithner Set to Unveil New Bank Plan Monday

Treasury Department Tim Geithner is set to announce the “comprehensive” bank plan Monday, according to various media outlets. An unnamed Treasury source told the Wall Street Journal this week that Geithner will unveil the plan in a speech regarding President Barack Obama’s financial rescue initiatives. Among the options that have been discussed and could possibly appear in the bank revitalization plan are additional capital injections, setting up a so-called “bad bank” to hold toxic assets and illiquid mortgage securities from struggling institutions, and government-guaranteed troubled assets. Sources told the Wall Street Journal in late January that the total purchasing power of a “bad bank” might top as much as $2 trillion, even beyond any TARP assistance it might receive and outside of the financial stimulus price tag, which is now past $900 billion in the Senate’s version of the bill. Talk is also circulating that the Treasury’s plan may include a mortgage mitigation program similar to the one proposed by Federal Deposit Insurance Corp. chairwoman Sheila Bair, who suggested using $22.4 billion of the remaining funds allotted through the Troubled Asset Relief Program to help struggling borrowers avoid foreclosure. Also facing change with the new plan is the “mark-to-market” accounting rule, which requires corporations to regularly adjust the value of their assets to reflect the fair market price. Senate Banking Committee chairman Christopher Dodd, D-Conn., has said bankers and lawmakers argue this rule is a key contributor to the weakening of financial institutions and the financial crisis altogether, and may require a temporary change or ban, according to a Market Watch bulletin. The road to nationalization? Geithner in late January announced the Treasury was in discussions on a plan aimed to “repair the financial system,” but did not confirm rumors about either a “bad bank” or nationalization of some major banks. “We have a financial system that is run by private shareholders, managed by private institutions, and we’d like to do our best to preserve that system,” he said. House speaker Nancy Pelosi days afterward, however, hinted at nationalization — or at least semi-nationalization — of the largest banks, although she denied any possible “total ownership” strategy, the New York Times reported. “Well, whatever you want to call it,” Pelosi said. “If we are strengthening [the banks], then the American people should get some of the upside of that strengthening. Some people call that nationalization.” Write to Diana Golobay at diana.golobay@housingwire.com.