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Banking and
Financial Institutions Law Update February 10, 2009
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Banking and
Financial Institutions Team Leaders
Jean M. Weipert
Team Members
William G. Asimakis,
Jr.
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BEYOND THE "TARP"
FINANCIAL STABILITY PLAN
U.S. Treasury Secretary Timothy Geithner today announced a new
Financial Stability Plan which aims to attack the credit crisis on
multiple fronts while providing protection and accountability to
taxpayers. Geithner also announced the launch of a new website,
www.financialstability.gov,
on which the details of the plan, many of which are still unknown,
and future information will be published. Concurrently with the
Treasury Secretary's announcement, Treasury released a Financial Stability Plan Fact
Sheet.
According to Treasury's Fact Sheet, the focus of the new plan is to
bring "the full force and full range of financial tools
available to cleaning up lingering problems in our banking system, opening
up credit and beginning the process of financial
recovery." In addition to the Treasury Department, the new
plan involves the resources of the Federal Reserve, the FDIC, the OTS
and the Comptroller of the Currency. The Financial Stability
Plan has six areas of emphasis:
1. A Financial Stability Trust will be established through which
Treasury will make capital investments in financial
institutions. The new program will require increased bank
balance sheet and disclosure requirements along with a forward-looking
comprehensive "stress test" which will be required for
banking institutions with assets in excess of $100 billion. The
stress test will be a government "assessment of whether major
financial institutions have the capital necessary to continue lending
and to absorb the potential losses that could result from a more
severe decline in the economy than projected."
Institutions which have undergone a stress test (or, with respect to
smaller institutions, institutions which have undergone a supervisory
review) will have access to a "capital buffer" from
Treasury in the form of a convertible preferred security investment.
2. A Public-Private Investment Fund through which banks will be
able to cleanse their balance sheets of "legacy"
assets. The fund would use public financing provided by
Treasury, the FDIC and the Federal Reserve to leverage private
capital with an initial public investment of up to $500 billion and
with the potential to expand to up to $1 trillion.
3. Treasury would use $100 billion to leverage up to $1 trillion
in consumer and business lending provided by the Federal
Reserve. The initiative expands the resources of the previously
announced Term Asset-Backed Securities Loan Facility by supporting
commercial mortgage-backed securities in addition to auto, small
business, credit card and other consumer and business credit.
4. The Financial Stability Plan will require increased
"transparency, accountability and conditionality," with
increased standards for firms receiving "exceptional
assistance." The focus of the new standards is to require
recipients of federal assistance to "show how every dollar of
capital they receive is enabling them to preserve or generate new
lending compared to what would have been possible without government
assistance." In addition, financial institutions receiving
capital assistance will be required to commit to participate in
foreclosure mitigation programs, will be required to submit to
restrictions on dividends, stock repurchases and acquisitions, and
will be subject to the limits on executive compensation announced by
the Obama administration last week. None of the new
transparency and accountability standards will apply retroactively.
5. The details of a Housing Support and Foreclosure Prevention Plan,
with a focus on driving down overall mortgage rates and committing
$50 billion to prevent "avoidable foreclosures," will be
announced in the coming weeks.
6. A Small Business and Community Bank Lending Initiative will
be launched by President Obama, Treasury and the SBA over the next
several days. This initiative will attempt to stop the recent
sharp decline in SBA lending.
Clark Hill will
strive to keep you consistently updated and informed about the
Troubled Asset Relief Program, the Financial Stability
Plan and the government's evolving response to the turmoil in
our capital markets. Please click here to view
our previously distributed "Under the TARP" newsletters.
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To find out
more about Clark Hill and our Banking and Financial Institutions
Law Group, visit clarkhill.com
or call 800.949.3124
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