Treasury Secretary Timothy Geithner announced that he is planning to reopen the Capital Purchase Plan (CPP) application process now that major repayments are expected from some of the larger U.S. banks.
Speaking before the Independent Community Bankers Association on May 13, Secretary Geithner stated that “[u]sing the proceeds of the repayments we expect to receive from some of the largest banks, we plan to reopen the application window for banks with total assets under $500 million under the Capital Purchase Program, and raise from 3% of risk-weighted assets to 5% the amount for which qualifying institutions can apply. This applies to all term sheets—public and private corporations, Subchapter S corporations, and mutual institutions. Current CPP participants will be allowed to reapply, and will have an expedited approval process. In addition, we will extend the deadline for small banks to form a holding company for the purposes of CPP. Both the window to form a holding company and the window to apply or reapply for CPP will be open for six months.”
While capital-deficient banks and banks that are concerned about impending capital deficiencies will no doubt welcome the news, the larger question is whether banks that currently meet regulatory capital standards and that feel confident about their capital levels will participate, given the reporting and lending obligations, as well as executive compensation restrictions, that apply to institutions that receive government money. It is also fair to say that there is no small measure of antipathy to becoming a business partner with the government, especially in light of substantive provisions in the CPP transactional documents that allow the Treasury to change the nature of the transaction unilaterally in the event of subsequent legislation.