What Is PPIPLA?
The Public-Private Investment Program for Legacy Assets (PPIPLA) is a program designed as a result of the implementation of the Troubled Asset Relief Program (TARP). It was designed to help alleviate some of the strain caused by the existence of legacy assets on banks’ balance sheets during the 2008 financial crisis. With too many of these assets, banks began to have difficulty attracting investors and were unable to issue credit to customers at the required rate. The plan was directed at ridding banks of legacy loans and legacy securities, and to sell the legacy assets to both private and public investors who would share in the risk as well as the profits.
The Public-Private Investment Program for Legacy Assets (PPIPLA) used $75 billion to $100 billion in private investor capital and TARP capital to buy legacy assets from banks, with a total of $500 billion in initial purchasing power. In order to maintain a fair selling price, each institution decided which assets to sell, but competing private investors decided the selling price. It was expected that, with proper implementation of the plan, banks would generate sufficient capital to begin extending credit once again.
PPIPLA was based on three fundamental principles:
- Maximizing the purchasing power of the taxpayer dollar by combining government and private investor funding to make the most of taxpayer resources.
- Sharing profits and risks with participants in the private sector.
- Minimizing the chances of government overpayment for assets by allowing private investors to establish the price of legacy assets available under the program via normal market competition.
How Legacy Assets Were Sold Under PPIPLA
The PPIPLA has two parts, one addressing legacy securities and one addressing legacy loans, both of which made up the troubled legacy assets straining banks financially during the 2008 financial crisis. In order to participate in the program, banks would determine which legacy loans and securities they wished to sell. For example, a bank would choose a pool of legacy loans to sell under PPIPLA. Then, the FDIC would analyze the pool of legacy loans to decide how much funding it could guarantee under the PPIPLA. The pool would then be auctioned off to the highest-bidding private investor, who would be able to access the PPIP to cover half the costs of the purchase. Once sold, private fund managers would manage the assets, under oversight from the FDIC, until the asset was finally liquidated.