A joint statement was issued by United States Treasury Secretary Henry Paulson, Federal Reserve Chairman Benjamin Bernanke, and Federal Deposit Insurance Corporation (“FDIC”) Chairman Sheila Bair regarding the role each governing body will play in bolstering public confidence in the United States banking system and the restoration and stabilization of market liquidity needed to support economic growth.
First, the Treasury will institute a voluntary capital purchase program for a broad array of financial institutions. Under this program, made possible by the Emergency Economic Stabilization Act of 2008, previously discussed here, here, and here, participating firms will be able to sell preferred shares to the federal government on attractive terms that protect the taxpayer and use the proceeds to replenish their capital reserves and renew their lending and investing activities. The window to participate in this program closes on November 14, 2008. More information on the program is available by clicking here.
Second, Secretary Paulson signed the systemic risk exception to the FDIC Act, which enables the FDIC to temporarily guarantee the senior debt of all FDIC-insured institutions and their holding companies, as well as deposits in non-interest bearing deposit transaction accounts. This action is called the Temporary Liquidity Guarantee Program. Under the program, certain newly issued senior unsecured debt issued on or before June 30, 2009, would be fully protected in the event the issuing institution subsequently fails, or its holding company files for bankruptcy. This protection includes promissory notes, commercial paper, inter-bank funding, and any unsecured portion of secured debt. Coverage would be limited to June 30, 2012, even if the maturity exceeds that date. More information on this program is available by clicking here.
Third, to further increase access to credit, the Federal Reserve has announced further details of its Commercial Paper Funding Facility (“CPFF”) program, which provides a broad backstop for the commercial paper market. Starting on October 27, 2008, the CPFF will fund purchases of commercial paper of three-month maturity from high-quality issuers. The program is scheduled to cease purchasing commercial paper on April 30, 2009. More information on the CPFF is available by clicking here.