The plan announced yesterday by Tim Geithner, US Treasury secretary, sets out to deal with “legacy assets” from the bubble years that are clogging up bank balance sheets, creating uncertainty about the solvency of financial institutions and deterring new lending.
It aims to do so by providing mechanisms to price these assets and to remove some of them from bank balance sheets. The hope is that this will reduce uncertainty as to the true financial position of the banks, enabling them to raise more capital from the private sector.
This would lessen the need for the government to recapitalise the banks with public capital.
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