Executive Summary

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Government actions to date have prioritized interacting with banking institutions rather than directly influencingtroubled asset prices:

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The Capital Purchase Program has injected non-common equity capital into the banking system, positivelyimpacting regulatory capital ratios but having little direct impact on troubled asset prices

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Other programs (e.g. TLGP, CPFF) have injected meaningful additional liquidity into banking system. Minimalleverage, however, is available for equity capital allocated to troubled asset markets

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To date, banks have executed minimal de-risking, have not attracted meaningful additional common equity capitalor sufficiently increased lending:

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Asset prices have remained significantly depressed given the lack of available leverage for equity capitalcommitted to buying troubled real-estate assets

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Banks, therefore, have retained these assets. This significantly hampers their ability to create transparency ,attract equity capital and increase lending

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A government program which provides non-recourse loans for asset markets should have a material impact onaddressing these current challenges and could be an attractive alternative for the "aggregator bank" to explore:

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With appropriate leverage, equity capital could commit to purchase troubled assets at reasonable prices, rather than today’s “firesale” prices

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Banks would then have the ability to more readily divest these assets and, in turn, be able to raise new equitycapital to repair its balance sheet

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This may all be achieved with equity sourced from the private capital markets, creating a market-based pricingmechanism which reduces risk to the taxpayer

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The government provides the senior secured financing while the private market takes the equity risk