Toxic Assets Still a Threat

And you thought the days of bailouts were over: As the Treasury Department prepares to scale down its troubled-asset program, the Congressional Oversight Panel says that toxic loans and troubled assets still threaten the financial system and need to be cleansed from banks' balance sheets—or things might get worse. The panel is advocating for more stress tests—particularly for smaller banks—and says the Treasury should consider additional capital for those institutions. But according to Rep. Jeb Hensarling (R-TX), the five-person panel’s dissenting vote, the Fed shouldn’t necessarily act on the panel’s recommendations. “It is possible that the toxic asset market is already beginning to heal itself and that the intervention proposed by the Panel could be inappropriate—if not counterproductive,” he said. He went on to suggest simply “that the Treasury and the Fed continue to monitor the toxic asset market.”