The United States Treasury has released a term sheet for the injection of capital into non-public qualifying financial institutions under the Treasury's Capital Purchase Program, implemented as part of the Troubled Asset Relief Program (TARP). The deadline for submitting applications under the Capital Purchase Program for publicly traded financial institutions was November 14, 2008, and as of the date of this memorandum, over 80 publicly traded financial institutions have announced their intent to participate in the Capital Purchase Program, accounting for almost $250 billion in investments by the Treasury. Non-public financial institutions are comprised of approximately 4,300 entities in the United States, far outnumbering the approximately 930 publicly traded financial institutions.  

If your institution is eligible to apply as a non-public qualifying financial institution, a capital infusion from the federal government may help your balance sheet. But are the investment terms worth it?  

The Capital Purchase Program raises a number of practical considerations for non-public qualifying financial institutions, especially regional and community banks, that might participate. Some of these include:  

  • Understanding the consequences of issuing new preferred stock and/or warrants;  
  • Conducting an assessment of executive compensation policies for compliance with program guidelines;  
  • Ensuring that anticipated use of Capital Purchase Program funds complies with program requirements; and  
  • Planning for alternative sources of funding and developing an exit strategy from the Treasury's investment.  

The deadline for non-public financial institutions to apply for participation in the Capital Purchase Program is December 8, 2008. Many non-public financial institutions are now in the process of analyzing the merits of participating in the program and assessing the impact of such participation. We are providing this memorandum to assist these institutions in their analysis by highlighting certain key points of the investment terms and providing commentary on certain key terms. We issued a similar memorandum for publicly traded financial institutions on November 21, 2008.

Please click here to view TARP Capital Purchase Program Non-Public QFI's