US plan to have some form of “bad bank” – CNBC

The Obama administration's financial rescue plan will now include a new form of "bad bank" combining public and private funds, according to CNBC.

Earlier, CNBC had reported that Treasury had dropped plans to establish a "bad bank" to buy distressed assets from commercial banks. That report had stirred doubts about the effectiveness of any package and hit U.S. stock futures.

The latest CNBC report, carried on its website on Monday New York time, said only that the idea of involving private capital in the purchase of bad assets was gaining ground.

In that way, the government might simply encourage firms to buy the assets or provide some sort of government subsidy covering some of the costs, CNBC said citing an unidentified source familiar with the discussions.

The report can be found at: http://www.cnbc.com/id/29104178

Many in the markets have been hoping the Obama administration would go all the way and set up an aggregate bank which would buy up billions of dollars of bad debt from banks.

But the White House has struggled with pricing the assets in a way that helps the banks while also being fair to taxpayers. Treasury Secretary Timothy Geithner will unveil the package later on Tuesday.

Earlier, Reuters reported that, as part of the bailout revamp, the Treasury is expected to offer government guarantees against losses for distressed assets that would remain on banks' books, but that would be separated from the rest of a bank's portfolio.

Geithner is also expected to announce plans to widen the scope of a Federal Reserve program worth up to $200 billion that seeks to encourage private investors to buy consumer-credit backed debt.

The administration is also designing a mortgage rescue program that would see Fannie Mae and Freddie Mac ease payments for hundreds of thousands of borrowers and offer a model for Wall Street to do the same, sources familiar with the plan said.