Treasury’s Capital Purchase Program continues to arouse suspicion, dissension, and exasperation. In a stern letter to Treasury Secretary Henry M. Paulson, American Bankers Association president and CEO Edward L. Yingling complained of confusion about the “purpose of the COO in the press and with policy-makers,” and urged that “Treasury and bank regulators clarify the purpose of the program very directly, differentiating the CPP capital program’s function to provide capital to strongly capitalized institutions from programs designed to help failing institutions.”

“It is completely unfair to ask thousands of banks across the country—and they are being explicitly asked by their regulators—to participate in a program when the impact of the program on those banks is unknown,” Yingling said.

Emory Ireland, a partner in law firm Foley & Lardner’s financial crisis response team, believes the CPP is “very confusing. Nothing in the rules requires any specific use of the money.” There is both public and government pressure to participate in the program. “If you do not go with the preferred share deal, there’s a public perception that Treasury doesn’t view you as a long-term winner. But participating opens your institution to scrutiny—to your executive compensation policies, your community reinvestment practices.”

Ireland confirms that “significant pressure” has been put on healthy banks to join the CPP club. “One bank had a phone call from its examiner, and it was clear that the regulator had a very strong desire that they apply for the program. And this is a very healthy institution.”

On the policy side, “chances are extraordinarily high there will be Congressional pressure to direct CPP money to credit flow,” Ireland says, although the current Treasury staff is “very resistant to credit allocations.”

Meanwhile, several insurers have said “no thanks” to the deal. John J. Degnan, Chubb Corp. vice chairman and COO wrote a letter to Paulson turning down the opportunity. “We do not believe that is appropriate to include property and casualty insurance companies in the CPP,” he wrote, since “most insurers in the P&C industry appear to be well capitalized and do not present any systemic risk to the economy.”  Degnan also brought up the “anticompetitive impact of bailouts on our industry.”

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