January 27, 2009 / 2:34 PM / in 10 years

Key senator says "bad bank" must be considered

WASHINGTON (Reuters) - A key senator said on Tuesday that setting up a so-called “bad bank” to mop up toxic assets of struggling U.S. banks should be considered, and that he thought the Obama administration was examining the idea.

“The bad bank is something we have to consider,” Sen. Jack Reed, chairman of the Senate Banking Subcommittee on Securities, Insurance and Investment, told reporters after a speech to the Council of Institutional Investors in Washington.

This was because until investors feel banks have a clean bill of health, there won’t be the kind of banking activity the economy needs, the Rhode Island Democrat said.

“I think they are looking at all options,” Reed said of the Obama administration. “I think that they understand that ... they have to be innovative.” He said that “this is my impression” and not the result of close consultation with the administration on the issue.

Editing by James Dalgleish

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