This article was originally published 18th October, 2008
On October 14, 2008, the Department of the Treasury ("Treasury"), the Board of Governors of the Federal Reserve System ("Federal Reserve") and the Federal Deposit Insurance Corporation ("FDIC") announced the implementation of "extraordinary steps" designed to bolster public confidence in U.S. financial institutions and the U.S. economy generally. These steps include the promulgation by the Treasury of a Capital Purchase Program pursuant to the terms of the Troubled Asset Relief Program ("TARP"), the creation by the FDIC of a Temporary Liquidity Guarantee Program, and the announcement by the Federal Reserve of further details of its Commercial Paper Funding Facility (the "Commercial Paper Funding Facility" or "CPFF"). In connection with these actions, the Treasury also has published additional details concerning the limitation of executive compensation for financial institutions participating in programs under the Emergency Economic Stabilization Act ("EESA"). The following briefly summarizes the terms of these new programs based on currently available information, including a background press conference held by the FDIC. The terms of these programs are subject to further change and clarification as the specific implementing regulations and guidelines continue to be published by the relevant agencies. Links to various agency releases containing additional information are provided below.
I. TARP Capital Purchase Program
General. Under this generally voluntary program, the Treasury is entitled to use up to $250 billion granted to it under the EESA to purchase senior preferred shares, on standardized terms described more fully in the public term sheet available at the Treasury's website. This program is only open to qualifying financial institutions that elect to participate before 5:00 pm Eastern Time on November 14, 2008. The Treasury will begin funding the purchase of these shares by the end of 2008.
Eligible Issuers. For purposes of the Capital Purchase Program,"qualifying financial institution" means: (i) any U.S. bank or U.S. savings association not controlled by a bank holding company or savings and loan holding company; (ii) any U.S. bank holding company or U.S. savings and loan holding company that engages only in activities permitted for financial holding companies under Section 4(k) of the Bank Holding Company Act, and any U.S. bank or U.S. savings association controlled by such a qualifying holding company; and (iii) any U.S. bank holding company or U.S. savings and loan holding company whose U.S. depository institution subsidiaries are the subject of an application under Section 4(c)(8) of the Bank Holding Company Act. Banks, savings associations and holding companies controlled by a foreign bank or company cannot be qualifying financial institutions. The Treasury has final authority to determine eligibility and allocations for qualifying financial institutions, in consultation with the appropriate federal banking agencies.
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