Tuesday, October 14, 2008

Major Components of the U.S. Bank Initiative

Major Components of the U.S. Bank Initiative The U.S. government Tuesday unveiled an expanded package of responses to the financial-markets crisis and credit crunch, unveiling new steps by the Treasury Department, Federal Reserve Board and Federal Deposit Insurance Corp. The major components of the new initiative are: BANK STAKES: The Treasury will purchase up to $250 billion of senior preferred shares in a wide variety of U.S. controlled banks, savings and loans and other institutions. Banks wishing to participate must do so by Nov. 14, and the largest stake will be $25 billion or 3% of risk-weighted assets. The federal government has pressured nine large U.S. banks to take part in the program, but the plan could eventually cover thousands of banks. Participants in the program must agree to limits on executive compensation. This program is funded by the original $700 billion troubled- asset purchase program recently passed by Congress. Treasury said it will continue with that program and announce details in the coming weeks. Treasury statement on stock-purchase plan FDIC GUARANTEES: The FDIC will provide a three-year, 100% uarantee on newly issued senior unsecured debt for a wide range of U.S. bank and financial holding companies. Eligible firms would need to issue the new debt before June 30, 2009, and the program would apply to promissory notes, commercial paper, interbank funding and any unsecured portion of secured debt. Covered debt is not allowed to exceed 125% of a company’s debt outstanding as of Sept. 30 that was scheduled to mature before June 30 of next year. Firms would have to pay an annualized fee of 75 basis points on debt issued with the FDIC guarantee, though the fee would be waived for the first 30 days of the program. FDIC statement EXPANDED DEPOSIT INSURANCE: The FDIC will provide a 100% guarantee for all noninterest-bearing transaction deposit accounts through Dec. 31, 2009. Firms would not have to pay for the additional deposit insurance for the first 30 days of the program, after which they would be assessed a 10 basis point surcharge for funds not already covered by the existing $250,000 deposit insurance limit. FED COMMERCIAL PAPER FUNDING: The Federal Reserve Board said it will expand its commercial-paper funding program, which backstops a market used by major corporations to fund their day-to-day operations. Beginning Oct. 27, the program will fund purchases of commercial paper of three-month maturity from high-quality issuers. It will cease purchasing commercial paper on April 30, 2009, unless the program is extended. Statement on commercial paper

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