Report: Bank plan relies on private money

The U.S. Treasury’s plan to take toxic assets off the books of troubled banks relies heavily on private capital taking a role, sources say.

Without naming sources, The Wall Street Journal reported Saturday that Treasury Secretary Timothy Geithner next week will unveil a three-pronged effort to deal with billions in non-trading assets, many of them mortgage-backed derivative securities, held by banks that have in effect paralyzed the nation’s credit markets.

The Journal said the Obama administration would contribute between $75 billion and $100 billion in new capital to the effort, which includes expanding the existing Term Asset-Backed Securities Loan Facility, or TALF, to absorb the toxic securities, most of which were created in 2005 and 2006.

The plan relies on private investors to set market prices for the toxic assets, which the government has been unwilling to do. Part of the effort is establishes public-private investment funds to buy mortgage-backed and other securities, to be run by private managers but financed with a combination of private money and government capital.

A third aspect of effort will be to create an entity, backed by the Federal Deposit Insurance Corp., to purchase and hold troubled bank loans, the Journal said.