January 27, 2009 / 8:31 PM / 9 years ago

UPDATE 1-US Sen. Dodd: "Bad bank" idea "makes some sense"

(Adds byline, quotes, background)

By Susan Cornwell

WASHINGTON, Jan 27 (Reuters) - U.S. Senate Banking Committee Chairman Chris Dodd said on Tuesday he was aware the Obama administration was discussing the idea of establishing a “bad bank” to mop up toxic assets of struggling U.S. banks, and the idea made some sense.

“I‘m aware they’re discussing it,” Dodd, a Connecticut Democrat, told reporters outside the Senate. “I think that idea has arrived. It makes some sense to me.”

Numerous U.S. lawmakers expect the Obama administration to soon produce a new strategy for stabilizing the nation’s troubled banks, and believe several options are under discussion.

Dodd’s committee would presumably be consulted if the administration were going to try and establish an aggregator bank, or “bad bank,” to take troubled assets off banks’ balance sheets, although Dodd said administration officials had not talked personally to him about it. “There’s talk about it but not to me specifically.”

Although the idea had “real appeal,” part of the challenge was determining just how to implement it, he said. The amount of troubled bank assets were “growing every day ... How much bad assets are we talking about, and at what cost?”

Another option would be for the Obama administration to request more bank bailout funds in addition to the $700 billion that has already been approved in recent months.

Dodd said he did not know whether the administration would seek more funds for banks, but he warned that if they do, they should first explain how they spent the money already in the bank rescue fund.

“My only advice would be tell us how you’re going to spend the $350 (billion) we just got you,” he said, referring to the second tranche of the money allocated to the Troubled Asset Relief Program. Then, “you can maybe make the case” for more cash.

“The public’s patience is running thin on this issue,” Dodd warned. It would be “awfully difficult” for the administration to ask for more money now “in the absence of demonstrating how well we can manage the money we’ve got,” Dodd said.

Among other things, Dodd said he wants to see the administration use some of the existing TARP funds for mitigation of home foreclosures.

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