11 February 2009

Three statements on the bank bailout plan 2.

http://www.treas.gov/press/releases/tg18.htm

February 10, 2009

TG-18

Secretary Geithner Introduces Financial Stability Plan

Remarks by Treasury Secretary Timothy Geithner
Introducing the Financial Stability Plan

Tuesday, February 10, 2009

As prepared for delivery

As President Obama said in his inaugural address, our economic strength is derived from "the doers, the makers of things."

The innovators who create and expand enterprises; the workers who provide life to companies; this is what drives economic growth.

The financial system is central to this process. Banks and the credit markets transform the earnings and savings of American workers into the loans that finance a first home, a new car or a college education. And this system provides the capital and credit necessary to build a company around a new idea.

Without credit, economies cannot grow at their potential, and right now, critical parts of our financial system are damaged. The credit markets that are essential for small businesses and consumers are not working. Borrowing costs have risen sharply for state and local governments, for students trying to pay for college, and for businesses large and small. Many banks are reducing lending, and across the country they are tightening the terms of loans.

Last Friday we learned that the economy had lost three million jobs last year, and an additional 600,000 just last month. As demand falls and credit tightens, businesses around the world are cutting back the investments that are essential to future growth. Trade among nations has contracted sharply, as trade finance has dried up. Home prices are still falling, as foreclosures rise and even credit worthy borrowers are finding it harder to finance the purchase of a first home, or refinance their mortgage.

Instead of catalyzing recovery, the financial system is working against recovery. And at the same time, the recession is putting greater pressure on banks. This is a dangerous dynamic, and we need to arrest it. It is essential for every American to understand that the battle for economic recovery must be fought on two fronts. We have to both jumpstart job creation and private investment, and we must get credit flowing again to businesses and families.

Without a powerful Economic Recovery Act, too many Americans will lose their jobs and too many businesses will fail. And unless we restore the flow of credit, the recession will be deeper and longer, causing even more damage to families and businesses across the country.

Today, as Congress moves to pass an economic recovery plan that will help create jobs and lay a foundation for stronger economic future, we are outlining a new Financial Stability Plan.

Our plan will help restart the flow of credit, clean up and strengthen our banks, and provide critical aid for homeowners and for small businesses. As we do each of these things, we will impose new, higher standards for transparency and accountability.

I am going to outline the key elements of this program today. But before I do that, I want to explain how we got here. The causes of the crisis are many and complex. They accumulated over time, and will take time to resolve.

Governments and central banks around the world pursued policies that, with the benefit of hindsight, caused a huge global boom in credit, pushing up housing prices and financial markets to levels that defied gravity.

Investors and banks took risks they did not understand. Individuals, businesses, and governments borrowed beyond their means. The rewards that went to financial executives departed from any realistic appreciation of risk.

There were systematic failures in the checks and balances in the system, by Boards of Directors, by credit rating agencies, and by government regulators. Our financial system operated with large gaps in meaningful oversight, and without sufficient constraints to limit risk. Even institutions that were overseen by our complicated, overlapping system of multiple regulators put themselves in a position of extreme vulnerability.

These failures helped lay the foundation for the worst economic crisis in generations.

When the crisis began, governments around the world were too slow to act. When action came, it was late and inadequate. Policy was always behind the curve, always chasing the escalating crisis. As the crisis intensified and more dramatic government action was required, the emergency actions meant to provide confidence and reassurance too often added to public anxiety and to investor uncertainty.

The dramatic failure or near-failure of some of the world's largest financial institutions, and the lack of clear criteria and conditions applied to government interventions caused investors to pull back from taking risk. Last fall, as the global crisis intensified, Congress acted quickly and courageously to provide emergency authority to help contain the damage. The government used that authority to pull the financial system back from the edge of catastrophic failure.

The actions your government took were absolutely essential, but they were inadequate.

The force of government support was not comprehensive or quick enough to withstand the deepening pressure brought on by the weakening economy. The spectacle of huge amounts of taxpayer assistance being provided to the same institutions that help caused the crisis, with limited transparency and oversight, added to public distrust. This distrust turned to anger as Boards of Directors at some institutions continued to award rich compensation packages and lavish perks to their senior executives.

Our challenge is much greater today because the American people have lost faith in the leaders of our financial institutions, and are skeptical that their government has – to this point -- used taxpayers' money in ways that will benefit them. This has to change.

To get credit flowing again, to restore confidence in our markets, and restore the faith of the American people, we are fundamentally reshaping the government's program to repair the financial system.

Our work will be guided by the lessons of the last few months and the lessons of financial crisis throughout history. The basic principles that will shape our strategy are the following:

We believe that the policy response has to be comprehensive, and forceful. There is more risk and greater cost in gradualism than in aggressive action.

We believe that action has to be sustained until recovery is firmly established. In the United States in the 30s, Japan in the 90s, and in other cases around the world, previous crises lasted longer and caused greater damage because governments applied the brakes too early. We cannot make that mistake.

We believe that access to public support is a privilege, not a right. When our government provides support to banks, it is not for the benefit of banks, it is for the businesses and families who depend on banks… and for the benefit of the country. Government support must come with strong conditions to protect the tax payer and with transparency that allows the American people to see the impact of those investments.

We believe our policies must be designed to mobilize and leverage private capital, not to supplant or discourage private capital. When government investment is necessary, it should be replaced with private capital as soon as possible.

We believe that the United States has to send a clear and consistent signal that we will act to prevent the catastrophic failure of financial institutions that would damage the broader economy.

Guided by these principles, we will replace the current program with a new Financial Stability Plan to stabilize and repair the financial system, and support the flow of credit necessary for recovery.

This new Financial Stability Plan will take a comprehensive approach. The Department of the Treasury, the Federal Reserve, the FDIC, and all the financial agencies in our country will bring the full force of the United States Government to bear to strengthen our financial system so that we get the economy back on track.

We have different authorities, instruments and responsibilities, but we are one government serving the American people, and I will do everything in my power to ensure that we act as one.

Our work begins with a new framework of oversight and governance of all aspects of our Financial Stability Plan.

The American people will be able to see where their tax dollars are going and the return on their government's investment, they will be able to see whether the conditions placed on banks and institutions are being met and enforced, they will be able to see whether boards of directors are being responsible with taxpayer dollars and how they're compensating their executives, and they will be able to see how these actions are impacting the overall flow of lending and the cost of borrowing.

These new requirements, which will be available on a new website FinancialStability.gov, will give the American people the transparency they deserve.

These steps build on what we've done already. We've acted to ensure the integrity of the process that provides access to government support, so that it is independent of influence from lobbyists and politics. We've committed to provide the American people with information on how their money is spent and under what conditions by posting contracts on the Internet. And, importantly, we have outlined strong conditions on executive compensation.

Under this framework, we are establishing three new programs to clean up and strengthen the nation's banks, bring in private capital to restart lending, and to go around the banking system directly to the markets that consumers and businesses depend on.

Let me describe each of these steps:

First, we're going to require banking institutions to go through a carefully designed comprehensive stress test, to use the medical term. We want their balance sheets cleaner, and stronger. And we are going to help this process by providing a new program of capital support for those institutions which need it.

To do this, we are going to bring together the government agencies with authority over our nation's major banks and initiate a more consistent, realistic, and forward looking assessment about the risk on balance sheets, and we're going to introduce new measures to improve disclosure.

Those institutions that need additional capital will be able to access a new funding mechanism that uses funds from the Treasury as a bridge to private capital. The capital will come with conditions to help ensure that every dollar of assistance is used to generate a level of lending greater than what would have been possible in the absence of government support. And this assistance will come with terms that should encourage the institutions to replace public assistance with private capital as soon as that is possible.

The Treasury's investments in these institutions will be placed in a new Financial Stability Trust.

Second, alongside this new Financial Stability Trust, together with the Fed, the FDIC, and the private sector, we will establish a Public-Private Investment Fund. This program will provide government capital and government financing to help leverage private capital to help get private markets working again. This fund will be targeted to the legacy loans and assets that are now burdening many financial institutions.

By providing the financing the private markets cannot now provide, this will help start a market for the real estate related assets that are at the center of this crisis. Our objective is to use private capital and private asset managers to help provide a market mechanism for valuing the assets.

We are exploring a range of different structures for this program, and will seek input from market participants and the public as we design it. We believe this program should ultimately provide up to one trillion in financing capacity, but we plan to start it on a scale of $500 billion, and expand it based on what works.

Third, working jointly with the Federal Reserve, we are prepared to commit up to a trillion dollars to support a Consumer and Business Lending Initiative. This initiative will kickstart the secondary lending markets, to bring down borrowing costs, and to help get credit flowing again.

In our financial system, 40 percent of consumer lending has historically been available because people buy loans, put them together and sell them. Because this vital source of lending has frozen up, no financial recovery plan will be successful unless it helps restart securitization markets for sound loans made to consumers and businesses – large and small.

This lending program will be built on the Federal Reserve's Term Asset Backed Securities Loan Facility, announced last November, with capital from the Treasury and financing from the Federal Reserve.

We have agreed to expand this program to target the markets for small business lending, student loans, consumer and auto finance, and commercial mortgages.

And because small businesses are so important to our economy, we're going to take additional steps to make it easier for them to get credit from community banks and large banks. By increasing the federally guaranteed portion of SBA loans, and giving more power to the SBA to expedite loan approvals, we believe we can turn around the dramatic decline in SBA lending we have seen in recent months.

Finally, we will launch a comprehensive housing program. Millions of Americans have lost their homes, and millions more live with the risk that they will be unable to meet their payments or refinance their mortgages.

Many of these families borrowed beyond their means. But many others fell victim to terrible lending practices that left them exposed, overextended, and with no way to refinance. On top of that, homeowners around the country are seeing the value of their homes fall because of forces they did not create and cannot control. This crisis in housing has had devastating consequences, and our government should have moved more forcefully to limit the damage.

As house prices fall, demand for housing will increase, and conditions will ultimately find a new balance. But now, we risk an intensifying spiral in which lenders foreclose, pushing house prices lower and reducing the value of household savings, and making it harder for all families to refinance.

The President has asked his economic team to come together with a comprehensive plan to address the housing crisis. We will announce the details of this plan in the next few weeks.

Our focus will be on using the full resources of the government to help bring down mortgage payments and to reduce mortgage interest rates. We will do this with a substantial commitment of resources already authorized by the Congress under the Emergency Economic Stabilization Act.

Let me add that as we go forward, President Obama is committed to moving quickly to reform our entire system of financial regulation so that we never again face a crisis of this severity.

We are consulting closely with Chairman Chris Dodd in the Senate, Chairman Barney Frank in the House, and their colleagues on both sides of the aisle on the broad outline of a comprehensive program of reforms. The President's Working Group on Financial Markets is developing detailed recommendations.

And we will begin working closely with the world's leading economies on a set of broader reforms to the international financial system in preparation for the G-20 Summit in London on April 2nd.

The success of our financial stability plan is going to require an unprecedented level of cooperation, here in the United States and around the world. Federal Reserve Chairman Ben Bernanke, FDIC Chair Sheila Bair, John Dugan, the Comptroller of the Currency, and John Reich the head of the Office of Thrift Supervision, are here today. I want to thank them for helping to shape this plan, and their commitment to making it work.

This program will require a substantial and sustained commitment of public resources. Congress has already authorized substantial resources for this effort, and we will use those resources as carefully and effectively as possible. We will consult closely with Congress as we move forward, and work together to make sure we have the resources and the authority to make this program work.

Later this week, I will be traveling to meet with the G7 finance ministers and central bank governors in Italy. There, I'll start the process of working with our international partners to ensure that we're working together to strengthen recovery and to help stabilize and repair the global financial system.

And we will work closely with the leadership of the IMF and World Bank so that they can deploy resources quickly to help those countries around the world that are most at risk from this crisis.

Many of the programs I've just discussed involve large numbers. But it is important to recognize that these programs involve loans, guarantees, and investments with terms and conditions that protect taxpayers and help compensate the government for risk. Because of these terms and conditions, the risk to taxpayers will be less than the headline.

Our obligation is to design the programs so that we are achieving the largest benefit in terms of supporting recovery at least cost to the taxpayer. And we take that obligation extremely seriously.

But I want to be candid: this strategy will cost money, involve risk, and take time. As costly as this effort may be, we know that the cost of a complete collapse of our financial system would be incalculable for families, for businesses and for our nation.

We will have to adapt our program as conditions change. We will have to try things we've never tried before. We will make mistakes. We will go through periods in which things get worse and progress is uneven or interrupted.

We will be guided by the principles of transparency and accountability, dedicated to the goals of restoring credit to families and businesses, and committed to moving our nation towards an economic recovery that is as swift and widespread as possible.

This is a challenge more complex than any our financial system has ever faced, requiring new programs and persistent attention to solve. But the President, the Treasury and the entire Administration are committed to see it through because we know how directly the future of our economy depends on it.

Thank you.

# # #

LINKS

* Financial Stability Plan Fact Sheet

http://www.treas.gov/press/releases/tg20.htm

February 10, 2009

TG-20

Treasury Secretary Tim Geithner Opening Statement Senate Banking Committee Hearing

Treasury Secretary Tim Geithner
Opening Statement
Senate Banking Committee Hearing
February 10, 2009 

As prepared for delivery 

Chairman Dodd, Ranking Member Shelby, and Members of the Committee:  thank you for inviting me to be here today. 

This morning, as the Senate continues its work on an economic recovery plan to help create jobs and lay a foundation for stronger economic future, I announced our Administration's plan to restart the flow of credit, strengthen our financial system, and provide critical aid for homeowners and for small businesses. 

Right now, job losses are accelerating and credit has slowed to a trickle.  On top of the financial and economic challenges we face there is another; a lack of faith.     

The American people have lost faith in the leaders of our financial institutions, and are skeptical that their government has to this point -- used taxpayers' money in ways that will benefit them.  

Together we can change this. 

To get credit flowing again, to restore confidence in our markets, and restore the faith of the American people, we have proposed a fundamental reshaping of the government's program to repair the financial system.    

It all begins with transparency.  We propose to establish a new framework of oversight and governance of all aspects of our Financial Stability Plan.  The American people will be able to see where their tax dollars are going and the return on their government's investment. They will be able to see whether the conditions placed on banks and institutions are being met and enforced. They will be able to see whether boards of directors are being responsible with taxpayer dollars and how they're compensating their executives. And they will be able to see how these actions are impacting the overall flow of lending and the cost of borrowing.   

These new requirements, which will be available on a new website FinancialStability.gov, will give the American people the transparency they deserve.   

Second, we are going to bring together the government agencies with authority over our nation's major banks and initiate a more consistent, realistic, and forward looking assessment about the risk on balance sheets.  We're calling it a financial "stress test."  We want banks' balance sheets cleaner, and stronger.  And we are going to help this process by providing a new program of capital support for those institutions  that need it.   

Institutions that need additional capital will be able to access a new funding mechanism that uses money from the Treasury as a bridge to private capital.  The capital will come with conditions to help ensure that every dollar of assistance is used to generate a level of lending greater than what would have been possible in the absence of government support.   

Third, together with the Fed, the FDIC, and the private sector, we propose the establishment of a Public-Private Investment Fund.  This program will provide government capital and government financing to help leverage private capital and get private markets working again.  This fund will be targeted to the legacy loans and assets that are now burdening many financial institutions.   

By providing the financing the private markets cannot now provide, this will help start a market for the real estate-related assets that are at the center of this crisis.  Our objective is to use private capital and private asset managers to help provide a market mechanism for valuing the assets.

We are exploring a range of different structures for this program, and will seek input from this Committee as we design it.  

Fourth, working jointly with the Federal Reserve, we are prepared to commit up to a trillion dollars to support a Consumer and Business Lending Initiative.  This initiative will kick start the secondary lending markets, to bring down borrowing costs, and to help get credit flowing again.   

In our financial system, 40 percent of consumer lending has historically been available because people buy loans, put them together and sell them.  Because this vital source of lending has frozen up, no financial recovery plan will be successful unless it helps restart securitization markets for sound loans made to consumers and businesses large and small. 

This lending program will be built on the Federal Reserve's Term Asset Backed Securities Loan Facility, announced last November, with capital from the Treasury and financing from the Federal Reserve.  

And because small businesses are so important to our economy, we're going to take additional steps to make it easier for them to get credit from community banks and large banks.  

Fifth, we will launch a comprehensive housing program. Just as the name of this Committee makes a link between banking and housing, so must our efforts to strengthen the financial system.   

The President has asked his economic team to come together with a comprehensive plan to address the housing crisis.  We will announce the details of this plan in the next few weeks.  

Our focus will be on using the full resources of the government to help prevent avoidable foreclosures and to reduce mortgage interest rates.  We will do this with a substantial commitment of resources already authorized by the Congress under the Emergency Economic Stabilization Act.  We welcome the ideas and input of this Committee in this important effort. 

And finally, President Obama is committed to moving quickly to reform our entire system of financial regulation so that we never again face a crisis of this severity.  And, again, that effort can only succeed with the collaboration and support of this Committee and other Members of Congress.  

Let me close by saying that our challenges in this financial crisis are more complex than any our financial system has ever faced, requiring new programs and persistent attention to solve.  But the President, the Treasury, and the entire Administration are committed to working with you to see it through because we know how directly the future of our economy depends on it.  

Thank you, and with that, I'd be happy to take your questions.

# # #

http://www.treas.gov/press/releases/tg21.htm

February 10, 2009

TG-21

Joint Statement

BY Secretary of the Treasury Timothy F. Geithner, Chairman of the Board of Governors of the Federal Reserve System Ben S. Bernanke, Chairman of the Federal Deposit Insurance Corporation Sheila Bair, Comptroller of the Currency John C. Dugan, and Director Of The Office Of Thrift Supervision John M. Reich -

Financial Stability Plan

February 10, 2009

Today, the Department of the Treasury, the Federal Reserve Board, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, and the Office of Thrift Supervision are announcing a comprehensive set of measures to restore confidence in the strength of U.S. financial institutions and restart the critical flow of credit to households and businesses. This program will help lay the groundwork for restoring the flows of credit necessary to support recovery.

The core program elements include:

* A new Capital Assistance Program to help ensure that our banking institutions have sufficient capital to withstand the challenges ahead, paired with a supervisory process to produce a more consistent and forward-looking assessment of the risks on banks' balance sheets and their potential capital needs.

* A new Public-Private Investment Fund on an initial scale of up to $500 billion, with the potential to expand up to $1 trillion, to catalyze the removal of legacy assets from the balance sheets of financial institutions. This fund will combine public and private capital with government financing to help free up capital to support new lending.

* A new Treasury and Federal Reserve initiative to dramatically expand – up to $1 trillion – the existing Term Asset-Backed Securities Lending Facility (TALF) in order to reduce credit spreads and restart the securitized credit markets that in recent years supported a substantial portion of lending to households, students, small businesses, and others.

* An extension of the FDIC's Temporary Liquidity Guarantee Program to October 31, 2009.

* A new framework of governance and oversight to help ensure that banks receiving funds are held responsible for appropriate use of those funds through stronger conditions on lending, dividends and executive compensation along with enhanced reporting to the public.

Alongside this program, the Administration will launch a comprehensive program to help address the housing crisis.

We will begin immediately a process of consultation designed to solicit further input from key public and private stakeholders. Details on all programs will be posted on FinancialStability.gov over the course of the next several weeks.

Congress has already allocated substantial resources and authority for this program through the Emergency Economic Stabilization Act (EESA). We will move ahead quickly and carefully to use the authorities provided. As we do so, we will continue to consult closely with Congress to ensure we have the resources to make this program work effectively over time. We anticipate adapting the program as we move forward.

New Financial Stability Trust

The program will consist of three elements: (1) a forward-looking assessment of the risks on bank balance sheets and their capital needs, (2) a capital program to help banks establish an additional buffer that strengthens both the amount and quality of the capital and (3) efforts to improve the disclosure of exposures on bank balance sheets. In conducting these exercises, supervisors recognize the need not to adopt an overly conservative posture or take steps that could inappropriately constrain lending.

Capital Assistance Program (CAP)

While the vast majority of U.S. banking institutions continue to exceed regulatory requirements for being well-capitalized, the highly uncertain economic environment has eroded confidence in the amount and quality of capital held by some banks.

As an essential part of restoring confidence in U.S. banking institutions, the supervisory agencies will undertake a coordinated and consistent capital planning exercise with each of the major U.S. banking institutions. As part of this process, supervisors will conduct a special forward-looking "stress" assessment of the losses that could occur across a range of economic scenarios, including conditions more severe than currently anticipated or than are typically used in the capital planning process.

This stress testing exercise will allow supervisors to determine whether an additional buffer, particularly one that strengthens the composition of capital, is needed for the bank to comfortably absorb losses and continue lending, even in a more adverse environment. Banks will be encouraged to access private markets to raise any additional capital needed to establish this buffer. However, in light of the current challenging market environment, the Treasury will make a new capital facility generally available to eligible banking institutions as a bridge to private capital until market conditions normalize.

This additional capital buffer is designed to help absorb larger than expected future losses and to support lending to creditworthy borrowers during an economic downturn.

Our expectation is that the capital provided under the CAP will be in the form of a preferred security that is convertible into common equity, with a dividend rate to be specified and a conversion price set at a modest discount from the prevailing level of the institution's stock price up to February 9th, 2009. This security would serve as a source of "contingent" common equity, convertible solely at the issuer's option for an extended period of time.

The instrument will be designed to give banks the incentive to replace USG-provided capital with private capital or to redeem the USG capital when conditions permit. In addition, with supervisory approval, banks will be allowed to apply to exchange the existing CPP preferred stock for the new CAP instrument.

By reassuring investors, creditors, and counterparties of financial institutions--as well as the institutions themselves--that there is a sufficient amount and quality of capital to withstand even a considerably weaker-than-expected economic environment, the CAP instrument should improve confidence and increase the willingness of financial institutions to lend.

Any capital investments made by Treasury under the CAP will be placed in a separate entity set up to manage the government's investments in US financial institutions.

Eligible U.S. banking institutions with assets in excess of $100 billion on a consolidated basis will be required to participate in the coordinated supervisory review process, and may access the CAP as a means to establish any necessary additional buffer. Eligible US banking institutions with consolidated assets below $100 billion may also obtain capital from the CAP. Eligibility will be consistent with the criteria and deliberative process established for identifying Qualifying Financial Institutions (QFIs) in the existing Capital Purchase Program (CPP).

The U.S. government has a range of other tools available for use in extraordinary circumstances to help mitigate the strains facing banks and restore confidence during this period of significant uncertainty. These tools include the provision of credit loss protection for specified asset pools held on the balance sheets of institutions as well as the guaranteeing of liabilities.

In pursuit of its commitment to restore and maintain the strength and stability of the U.S. financial system, the U.S. government remains committed to preventing the failure of any financial institution where that failure would pose a systemic risk to the economy.

Enhancing public disclosure

Increased transparency will facilitate more effective market discipline in financial markets. We will work with bank regulatory agencies and the Securities and Exchange Commission and accounting standard setters in their efforts to improve public disclosure by banks. This process will aim to increase the publicly available information about the range of exposures on bank balance sheets.

New Public-Private Investment Fund (PPIF)

As a complement to the CAP, the Treasury, working with the Federal Reserve, FDIC, and private investors, will create a new Public-Private Investment Fund to acquire real-estate related "legacy" assets. By selling to PPIF, financial institutions will be able to reduce balance sheet risk, support new lending and help improve overall market functioning. The PPIF facility will be sized up to $500 billion and we envision expanding the program to up to $1 trillion over time.

This PPIF will combine a mix of government and private capital with financing supported by the Federal Reserve and the FDIC. Designing this structure in an efficient manner will require a careful balance between the interests of taxpayers, investors, and the financial institutions, and we will continue to consult with market participants to design the best structure. The participation of private investors will help promote competitive prices that will sufficiently compensate and protect taxpayers, while providing additional risk capital to support the purchase program.

Temporary Financing and Direct Purchase Facilities

Full restoration of credit flows to households and businesses will require restarting critical segments of our financial markets, particularly securitization markets. The facilities described below are designed to improve the functioning of markets where dislocation is most acute and most detrimental to economic activity.

Expansion of the Term Asset-Backed Securities Lending Facility (TALF)

The Term Asset-Backed Securities Lending Facility (TALF) combines capital provided by the TARP with funding from the Federal Reserve in order to promote lending by increasing investor demand for securitized loans. The TALF will significantly expand the availability and reduce the cost of term financing for investors in asset-backed securities (ABS), which will stimulate demand for ABS and thereby allow originators of securitized loans to lower the cost and increase the availability of credit to consumers and businesses.

The Treasury and Federal Reserve have agreed to dramatically increase the size of the TALF from $200 billion to as much as $1 trillion and to expand the eligible asset classes from the current newly issued `AAA' rated ABS collateralized by credit card, auto, student, and Small Business Administration loans to include newly issued `AAA' commercial mortgage-backed securities (CMBS). In addition, the Treasury will continue to consult with the Federal Reserve regarding possible further expansion of the TALF program to include other asset classes, such as non-Agency residential mortgage-backed securities (RMBS) and assets collateralized by corporate debt.

This facility is designed in a way that gradually reduces its attractiveness and scale as the economy and financial conditions recover.

Ongoing mortgage-backed securities (MBS) and Agency Debt Purchases

The Federal Reserve will continue its current purchase program of Agency debt and mortgage-backed securities (MBS) on a total scale of at least $600 billion. The Federal Reserve and the Treasury stand ready to expand their MBS purchase programs as conditions warrant. These purchase programs should help to stimulate economic activity by reducing mortgage rates, thereby improving housing affordability and the demand for houses, as well as reducing interest payments and freeing up funds for households that refinance.

Additional tools for the Federal Reserve

In order for the Federal Reserve to manage monetary policy over time in a way consistent with maximum sustainable employment and price stability, it must be able to manage its balance sheet, and in particular, to control the amount of reserves that the Fed provides to the banking system. The amount of reserves is the key determinant of the interest rate that the Federal Reserve uses to pursue its monetary policy objectives. Treasury and the Federal Reserve will seek legislation to give the Federal Reserve the additional tools to enable it to manage more effectively the level of reserves.

Extension of Temporary Liquidity Guarantee Program (TLGP)

The FDIC's Temporary Liquidity Guarantee Program has contributed importantly to the gradual easing of liquidity strains on our financial institutions. Though funding conditions have eased somewhat, this temporary program will be extended for an additional four months to provide liquidity to our banks as part of this overall strategy to move our economy forward.

With that in mind, for an additional premium, the FDIC will extend the TLGP program through October 2009.

Stronger Conditions on Lending, Executive Compensation, and Reporting

Going forward, the Financial Stability Plan will call for a new level of transparency, accountability and conditionality with tougher standards for firms receiving exceptional assistance. These stronger conditions were informed by recommendations made by formal oversight groups – the Congressional Oversight Panel, the Special Inspector General, and the Government Accountability Office -- as well as Congressional banking oversight leaders.

Use of government-provided capital and impact on lending

Recipients of capital provided under the CAP will be required to submit a plan for how they intend to use this capital to preserve and strengthen their lending capacity – specifically, they will commit to increase lending activities above levels relative to what would have been possible without government support. This plan will be submitted during the application process, and the Treasury Department will make these plans public upon distribution of the capital investment to the firm.

These firms must submit to Treasury monthly or quarterly reports on their lending by category. This report will also include a comparison to estimates of what their lending would have been in the absence of government support. For public companies, similar reports will be filed on an 8K simultaneous with the filing of their 10Q and 10K reports. All these reports will be put on the Treasury website FinancialStability.gov.

Taxpayers' Right to Know

Information disclosed or reported to Treasury by recipients pursuant to the conditions and requirements announced today will be posted on FinancialStability.gov.

Committing recipients to mortgage foreclosure mitigation

All recipients of Capital Assistance Program (CAP) funds shall commit to participate in mortgage foreclosure mitigation programs consistent with guidelines we will release on industry standard best practices.

Restricting dividends, stock repurchases and acquisitions

Limiting dividends, stock repurchases and acquisitions provides assurance to taxpayers that all of the capital invested by the government under the CAP goes to improving banks' capital bases and promoting lending. Until an institution repays all funds provided to it under the CAP, it shall be:

* Restricted from paying quarterly common stock dividend payments in excess of $0.01 per share unless approved by Treasury and the primary regulator as consistent with the firm reaching its capital planning objectives.

* Restricted from repurchasing shares. Special approval for share repurchases may be granted by the Treasury Department and the banking institution's primary regulator.

* Restricted from pursuing acquisitions. Banking institutions that receive CAP funds are restricted from pursuing cash acquisitions of healthy firms until the government investment is repaid. Exceptions will be made for regulator-approved restructuring plans.

Limiting executive compensation

Firms receiving CAP funds will be required to comply with final version of the executive compensation restrictions announced February 4th.