The U.S. government is crafting plans to create a 'bad bank' to purchase toxic assets from financial institutions and strengthen the balance sheets of financial institutions, according to a report from CNBC on Tuesday evening.

The concept of a 'bad bank' is one which has been floated around by many countries across the globe as a means to add further stimulus to financial institutions and speed up market recovery. Nevertheless, the details of the plan have not been released.

At the very least, CNBC quoted an unnamed Treasury official as saying that the government was planning a "major" announcement next week.

In the aftermath of the announcement, Bloomberg News cited "sources familiar with the matter" that the Federal Deposit Insurance Corporation (FDIC) would be the likely candidate to run such an institution, arguing that Chairperson Sheila Bair has proposed issuing FDIC-backed debt to finance the project.

Also on Tuesday, U.S. Senator Chris Dodd, an active member in the crafting of recent financial legislation in the United States, said the creation of a 'bad bank' sounded like a good idea and confirmed that he is aware that the Obama administration is looking into such a matter.

"There is talk about it, but not to me," he said.

By Erik Kevin Franco and edited by Nancy Girgis
©CEP News Ltd. 2009