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US Associations’ Tarp Survey Indicates Industry in Need of Price Transparency Guidelines

Originally appeared in MiFID Monitor

The industry needs more information about how the implementation of the US Troubled Asset Relief Program (Tarp) could be most effective, particularly in the areas of price transparency, according to a survey by five industry associations. The survey, which was sent to members of the Securities Industry and Financial Markets Association (Sifma), American Securitisation Forum (ASF), American Bankers Association (ABA), Mortgage Bankers Association (MBA) and Commercial Mortgage Securities Association (CMSA), highlights the industry’s reaction to the Tarp.

The survey was aimed at providing insights into how financial organisations have been assessing and evaluating potential Tarp participation. Tim Ryan, president and CEO of Sifma, explains: “The industry needed more granular, tangible information on how Tarp implementation could be most effective, and this survey provides that guidance to our industry and to policymakers. Given the breadth of the markets, this survey provides some meaningful direction on where regulators’ tools might be targeted to be most effective, particularly as it relates to providing price transparency.”

George Miller, executive director of the ASF, adds: “This survey will provide the industry and policymakers with information that will be useful in building a smart programme.”

According to the results of the survey, which garnered responses from 445 individuals, large firms are more likely to participate in Tarp, although it was generally agreed that most financial institutions would participate in the end. Institutions indicated they would sell approximately 50% of their assets targeted for Tarp at a slight discount to model-based valuations (or current book value if marked to market) but small institutions would require prices closer to cost.

Small institutions are more concerned about uncertainty over future realised losses and large institutions are concerned about illiquidity premium. In addition to commercial real estate, smaller institutions identified other real estate owned (OREO) and larger institutions identified corporate loans and collateralised debt obligations (CDOs) as having the greatest illiquidity premium and would be the most beneficial to their institutions if purchased by Tarp.

Respondents indicated that a lack of clarity regarding implementation, warrant provision, and uncertainty over shareholder perception of participation is significantly affecting their willingness to participate.

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