Details On The New Federal Financial Stability Programs: CAP Replaces CaPP, Stress Tests And Amended TLGP

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Details On The New Federal Financial Stability Programs: CAP Replaces CaPP, Stress Tests And Amended TLGP

This week, regulators detailed a number of Financial Stability

Plan programs. Economic assessments will be conducted on the 19

largest financial institutions – those with $100 billion

or more of assets. Capital in the form of mandatory convertible

preferred securities will be made available to financial

institutions identified through economic assessments, or upon

approved applications, through the new Capital Assistance Program

(CAP). Eligible institutions will be able to issue FDIC-guaranteed

senior unsecured mandatory convertible debt under an extension of

the Federal Deposit Insurance Corporation's (FDIC) temporary

liquidity guarantee program (TLGP).

Below we discuss each program. Many questions remain unanswered

for financial institutions and market participants; additional

information will become available as regulators begin the economic

assessments and the programs move into the implementation

phase.

For links to the publicly-available information regarding these

programs and for more information about the government intervention

efforts in response to the financial crisis, please see our Client

Alerts and resources at

Financial Crisis Legal Updates and News.

Background

On October 14, 2008, two programs were announced to address

concerns that the financial crisis was depleting capital levels at

financial institutions and that the freeze in the interbank lending

market was creating liquidity issues.

First, the U.S. Department of the Treasury (Treasury) announced

the Capital Purchase Program (CaPP) under the Emergency Economic

Stabilization Act's (Stabilization Act) Troub...

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