Banks and the U.S. housing market are past the crisis stage and are now on a path to recovery, a top U.S. regulator said on Thursday.
We're in the clean-up stage now, Sheila Bair, chairman of the Federal Deposit Insurance Corp, said at a financial reform conference.
Bair said the FDIC hopes to have a pilot sale for its legacy loan program in early June, and anticipates that the sale will be in the range of about $1 billion of banks' distressed loans.
The legacy loan program is part of the bigger Public-Private Investment Program, which is designed to take up to $1 trillion of troubled assets off banks' balance sheets.
Bair also said she was seeing glimmers of hope in the housing market, especially in California.
She said the recent uptick in foreclosures was due to the lifting of temporary moratoriums on such activity, but expects relief will come from the Obama Administration's loan modification program.
Regarding the legacy loan program, Bair said the FDIC has received a tremendous amount of investor interest and has lined up banks that are willing to sell their loans into public-private investment funds.
Banks have so far been reluctant to publicly state that they will participate, saying they are waiting to see how the loans will be priced for fear they would have to sell at a steep discount.
Bair said the FDIC was looking at allowing banks that sell their loans to also take equity stakes in the investment funds, so they can participate in the upside when the loans gain value.
Looking to improve the financial system, Bair said there needed to be a resolution authority that can wind down troubled, systemically important institutions.
We think if Congress, creates that mechanism, it will create greater market discipline, Bair said.
Bair repeated her view that the FDIC was the logical choice to be given those powers, as it has experience resolving failed depository banks.
The FDIC currently does not have the power to wind down bank holding companies or other types of institutions.
Comptroller of the Currency John Dugan later said at the conference that the FDIC lacked the expertise to wind down and run big institutions.
The Treasury has sent proposed legislation to Congress that would give the FDIC the power. Lawmakers plan to have hearings in the topic in the coming weeks.
Bair also called for more international cooperation, saying regulators should seek global restrictions on excessive leverage.
There need to be international agreements on how to resolve a troubled systemic firm that is global in nature, she added.
The financial system has been through a tough 18 months, she said, but she expressed optimism about the future.
I think long-term, the prospects for banking are good, she said.
(Reporting by Karey Wutkowski and John Poirier; editing by Gunna Dickson and Lisa Von Ahn)