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SYDNEY, Feb 10 (Reuters) - The U.S. Treasury has dropped plans to establish a "bad bank" to buy distressed assets from commercial banks as part of a financial rescue package, CNBC reported on its website.
"The Obama administration's wide-ranging plan to stabilize the financial system no longer includes creating a 'bad bank' but will still contain measures to buy up toxic assets from financial institutions," CNBC reported on Monday New York time, citing a source familiar with the plan.
The report added to market doubts that the plan would be effective and helped knock U.S. equity futures lower while pushing up the safe-haven yen. Many in the market had been hoping the Obama administration would go all the way and set up an aggregate bank which would buy up billions of dollars of bad debt from banks.
But the White House has struggled with pricing the assets in a way that helps the banks while also being fair to taxpayers. Instead, it would push private investors to buy compromised mortgage-related assets that are clogging bank balance sheets.
CNBC also reported that funding for the bank rescue plan is unlikely to exceed the $350 billion currently available under the Troubled Asset Relief Program, or TARP.
Treasury Secretary Timothy Geithner will unveil the package later on Tuesday.
Earlier, Reuters reported that, as part of the bailout revamp, the Treasury is expected to offer government guarantees against losses for distressed assets that would remain on banks' books but that would be separated from the rest of a bank's portfolio.
Geithner is also expected to announce plans to widen the scope of a Federal Reserve program worth up to $200 billion that seeks to encourage private investors to buy consumer-credit backed debt.
The administration is also designing a mortgage rescue program that would see Fannie Mae and Freddie Mac ease payments for hundreds of thousands of borrowers and offer a model for Wall Street to do the same, sources familiar with the plan said. (Reporting by Wayne Cole; Editing by Jan Dahinten)