In a speech this morning before the Independent Community Bankers of America (ICBA), while acknowledging that "the process of financial recovery and repair is going to take time," Treasury Secretary Geithner cited several key metrics that indicated that "the financial system is starting to heal":

  • Spreads between yields on treasury securities and investment grade corporate bonds "have fallen about 210 basis points and spreads on high yield corporate bonds are down about 800 basis points since the end of November."
  • "Risk premiums in short-term inter-bank markets have fallen 275 basis points" since November, and the "cost of credit protection for the largest U.S. banks has fallen by about 150 basis points just since early April."
  • Spreads for "AAA credit card receivables ABS have fallen about 300 basis points from their peak" and there has been "more issuance of consumer asset-backed securities in the past two months than in the preceding five months combined."
  • Interest rates on 30-year mortgages have dropped to "an historic low of 4.8%, and refinancing has surged."  

"Leverage has declined," as "banks are funding themselves more conservatively."

Secretary Geithner also announced that, as larger banks repay their TARP investments, Treasury intends to re-open the Capital Purchase Program (CPP) application window for smaller banking organizations (those with assets less than $500 million). The application window will re-open for six months, and the amount smaller banks can obtain under the CPP will be increased from the current 3% of risk-weighted assets to 5%. He indicated that the six-month application window will be open for all term sheets – public and private corporations, Subchapter S corporations, and mutual institutions – and that current CPP participants will be allowed to reapply for additional funding under "an expedited approval process." Treasury is also extending for six months the CPP deadline for smaller banks to form a holding company.

Regarding pending legislation that would increase the FDIC's borrowing authority from $30 billion to $100 billion, he stated that the Obama administration "fully supports the FDIC's request to increase its permanent statutory borrowing authority from $30 billion to $100 billion under its line of credit with the Treasury Department. This could prove an important step towards decreasing the FDIC assessment fees that your banks now face and that we know you are deeply concerned about."

Secretary Geithner also addressed proposals for legislative authority "to act more quickly to contain the potential damage cause by the potential failure of a large complex financial institution." He assured the ICBA that this "proposal is structured as an extraordinary mechanism for extraordinary situations, and will be kept strictly separate from the existing FDIC deposit insurance fund," such that "the financial costs of intervention would no longer fall to those institutions that played by the rules and made conservative and prudent choices."