Four companies Ambac, MBIA, Financial Guaranty Insurance Company and Financial Security Assurance have guaranteed asset-backed securities, such as collateralised debt obligations and credit derivatives, worth $160 billion.
NEW YORK TIMES Banks Look to Investors to Offload Risk | As they work to meet new regulations, banks are making deals with investors to partially guarantee assets, so that the banks do not have to hold as much capital against losses, The Financial Times reports.
Ricardo Caballero was busily arguing during this whole discussion that the government ought to guarantee asset prices five years out, because if we could only get bank stocks up, everything would be fine.
See articleBank of America paid $425m to leave a federal programme that guaranteed the assets it acquired when it took over Merrill Lynch.
These are not key to Ireland's economy, so the government does not have to stand behind them.Even so some of the guaranteed banks' assets are sure to turn bad.
To sidestep the thorny valuation problem, some have suggested that the bad bank acquire only assets that have already been marked down significantly and guarantee other assets, but officials would have just as difficult a task in determining how much to charge for insuring risky assets.
Buying or guaranteeing these assets would remove worries that the banks would be hurt further if the assets continued to lose value.
The government is likely, for example, to guarantee banks' assets.
Instead, the plan may rely heavily on the government guaranteeing those assets against losses, as well as further injections of capital in the form of preferred shares.
The program coincided with several other government plans to counter a credit squeeze, from guaranteeing some assets to putting political pressure on bank executives to lend more.
