The U.S. Department of the Treasury today announced a voluntary Capital Purchase Program under which Treasury will provide capital to the U.S. banking system by making equity investments in banks.

Under the program, Treasury will purchase up to $250 billion of senior preferred shares on standardized terms. The program will be available to qualifying U.S. controlled banks, savings associations, and certain bank and savings and loan holding companies engaged only in financial activities. Interested institutions must elect to participate before 5:00 pm (EDT) on November 14, 2008. Treasury will determine eligibility and allocations for interested parties after consultation with the appropriate federal banking agency.

The minimum subscription amount available to a participating institution is 1 percent of risk-weighted assets. The maximum subscription amount is the lesser of $25 billion or 3 percent of risk-weighted assets. Treasury will fund the senior preferred shares purchased under the program by year-end 2008.

The senior preferred shares will qualify as Tier 1 capital and will rank senior to common stock and pari passu – that is, at an equal level in the capital structure – with existing preferred shares, other than preferred shares which by their terms rank junior to any other existing preferred shares. The senior preferred shares will pay a cumulative dividend rate of 5 percent per annum for the first five years and will reset to a rate of 9 percent per annum after year five. The senior preferred shares will be non-voting, other than class voting rights on matters that could adversely affect the shares.

The senior preferred shares will be callable at par after three years. Prior to the end of three years, the senior preferred may be redeemed with the proceeds from a qualifying equity offering of any Tier 1 perpetual preferred or common stock.

Treasury may transfer the senior preferred shares to a third party at any time. The issuer of the shares must file a registration statement with the SEC covering the senior preferred shares promptly after the issuance of the shares and take all necessary action to have the registration statement declared effective as soon as possible. If requested by Treasury, the issuer must use reasonable efforts to have the senior preferred shares listed on a national securities exchange. These actions will facilitate the transfer of the shares and the creation of a public market.

In conjunction with the purchase of senior preferred shares, Treasury will receive warrants to purchase common stock with an aggregate market price equal to 15 percent of the senior preferred investment. The exercise price on the warrants will be the market price of the participating institution’s common stock at the time of issuance, calculated on a 20-trading day trailing average. The warrants will have a term of 10 years and be exercisable immediately. The warrants will be transferable and must be covered by a registration statement filed with the SEC. Treasury will agree not to exercise voting power with respect to any shares of common stock issued to it upon exercise of the warrants. If the participating institution completes one or more qualifying equity offerings before December 31, 2009 that raise gross proceeds equal to or more than the aggregate purchase price of the senior preferred shares, the number of warrants will be reduced by 50%. If the participating institution ceases to be listed, Treasury has the option of exchanging the warrants for senior term debt or some other instrument with comparable value. In the case of an institution that is not publicly traded at the time of the investment, Treasury may take senior term debt or another security as determined by Treasury instead of warrants.

Companies participating in the program will be subject to restrictions on dividends and stock repurchases. For as long as any senior preferred shares are outstanding, no dividends may be paid on any common or other preferred shares and no common or other preferred shares may be repurchased unless all dividends have been paid on the senior preferred shares. Treasury’s consent will be required for any increase in common dividends for the first three years, unless before that time the senior preferred shares have been redeemed in whole or Treasury has transferred the shares to third parties. Treasury’s consent also will be required for any share repurchases for the first three years, other than repurchases of the senior preferred securities and repurchases of common or junior preferred securities in connection with any benefit plan in the ordinary course of business consistent with past practice, unless before that time the senior preferred shares have been redeemed in whole or Treasury has transferred the shares to third parties.

Companies participating in the program must adopt the Treasury Department’s standards for executive compensation and corporate governance for the period during which Treasury holds equity issued under this program. These standards generally apply to the chief executive officer, chief financial officer, plus the next three most highly compensated executive officers.

The financial institution must meet certain standards, including: (1) ensuring that incentive compensation for senior executives does not encourage unnecessary and excessive risks that threaten the value of the financial institution; (2) required clawback of any bonus or incentive compensation paid to a senior executive based on statements of earnings, gains or other criteria that are later proven to be materially inaccurate; (3) prohibition on the financial institution from making any golden parachute payment to a senior executive under Section 280G of the Internal Revenue Code; and (4) agreement not to deduct for tax purposes executive compensation in excess of $500,000 for each senior executive. Treasury is issuing interim final rules for these executive compensation standards.