Congressional Oversight Panel, August 11, 2009 – Submitted under Section 125(b)(1) of Title 1 of the Emergency Economic Stabilization Act of 2008, Pub. L. No. 110-343. August Oversight Report – The Continued Rise of Troubled Assets.
“Given the ongoing uncertainty, vigilance is essential. If conditions exceed those in the worst case scenario of the recent stress tests, then stress-testing of the nation’s largest banks should be repeated to evaluate what would happen if troubled assets suffered additional losses. Supervisors should continue their increased monitoring of problem banks, and banks too weak to survive write-downs should be required to raise more capital. If PPIP participation proves insufficient, Treasury may want to consider adapting the program to make it more robust or shifting to a different strategy to remove troubled assets from the banks’ book. Treasury should also pay special attention to the risks posed by commercial real estate loans. Part of the financial crisis was triggered by uncertainty about the value of banks’ loan and securities portfolios. Changing accounting standards helped the banks temporarily by allowing them greater leeway in describing their assets, but it did not change the underlying problem. In order to advance a full recovery in the economy, there must be greater transparency, accountability, and clarity, from both the government and banks, about the scope of the troubled asset problem. Treasury and relevant government agencies should work together to move financial institutions toward sufficient disclosure of the terms and
volume of troubled assets on institutions’ books so that markets can function more effectively. Finally, as noted above, Treasury must keep in mind the particular challenges facing small banks.”
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