Moments ago, the U.S. House of Representatives voted 263-171 to approve the Emergency Economic Stabilization Act ("EESA"), sending the bill to the President for signature. Today's vote brings to a close nearly three weeks of intense political maneuvering and uncertainty. Ultimately, following the U.S. Senate's 74-25 approval of a revised measure on Wednesday night, both Democratic and Republican House leaders secured additional support to reverse the fate of this sweeping fiscal intervention. The President is expected to sign this bill in short order, triggering new authority in the Treasury Department to identify and acquire troubled mortgage assets and other financial instruments viewed as creating economic risk.
The central elements of the bill include:
- Creation of a Troubled Asset Relief Program (“TARP”) to purchase troubled assets from financial institutions via a new Office of Financial Stability within the Treasury Department. The Treasury would establish regulations, and consult with the Board of Governors of the Federal Reserve System, the FDIC, the Comptroller of the Currency, the Director of the Office of Thrift Supervision, and the Secretary of Housing and Urban Development regarding implementation.
- The TARP program would initially have funding of $250 billion. The President may certify a need for an additional $100 billion, but the final $350 billion may be accessed only if the President transmits a written report to Congress requesting such authority. Congress may disapprove this certification and block use of the funds.
- Entities participating in the program are subject to limitations on executive compensation and severance packages for executives. For additional details, see http://www.sonnenschein.com/pubs/e-Alerts/Congress_Passes_New_.html
- Both the Government Accountability Office (GAO) and a newly created Special Inspector General will review actions under the EESA and report quarterly to Congress.
- Asset managers may be retained by the Treasury on an expedited basis, but must be subject to conflict of interest provisions.
- Requires the President to submit legislative proposals to recoup any taxpayer losses by assessments on program participants after five years of operation.
- Requires that the Treasury receive non-voting stock warrants from program participants.
- Requires that the Treasury also establish an insurance program for institutions participating in the program, and assess risk-based premiums based on the assets held by those participants.
- Raises FDIC insurance limits from $100,000 to $250,000 per account through December 31, 2009.
The coming weeks will see substantial change in the financial markets as the effects of this Act become clearer, and the Treasury begins to outline regulations to implement the TARP program. With the SEC now more fully authorized to suspend mark-to-market accounting, and the impacts of the previous interventions and mergers continuing to become more apparent, the period leading into the November elections will be dynamic and remain politically charged.