One Obscure Acronym That May Actually Mean Something to Depositors
July 01, 2009
People who hold their money in conservative investments such as CDs and money market accounts can be forgiven for not knowing the definition of every acronym the financial world and/or U.S. government invents. After all, these acronyms--TARP, TALF, MBS--fly fast and furious, and often don't much affect deposit accounts.
One acronym that may more immediately impact deposit accounts is called "PPIP," or the Public-Private Investment Program.
PPIP Could Help Banks Get Back to Health
The overall idea of PPIP is to provide banks with motivation to finally get rid of the those "toxic assets." As of now, banks have been leery of doing so, simply because the prices investors are willing to pay for these assets is, well, toxic in and of itself.
Now, though, the government has stepped in, via PPIP, to reduce the risk of private investors in purchasing these assets. Essentially, the government provides cheap loans to and shares losses with private investors.
Large asset management companies such as the BlackRock and Fortress Investment Group are expected to be among the prime exploiters of this arrangement.
And This Means What to Depositors?
Usually, a clearing of toxic assets off the books of banks would increase capital available to lend. More lending usually means more demand for deposits, which usually means higher interest rates paid to depositors.
So far, PPIP looks like one small step in that direction.
