The U.S. Treasury Department keeps investing in the health of the financial system: at the end of 2008 its purchase of preferred stock and warrants from banks large and small under the Capital Purchase Program totaled $177.5 billion. Treasury has allocated $250 billion under the CPP. The most recent recipients as of New Year’s Eve were SunTrust Banks ($1.35 billion); PNC Financial Services Group ($7.579 billion); Fifth Third Bancorp ($3.4 billion); CIT Group ($2.33 billion); SunTrust Banks ($1.35 billion); First Banks, Inc. ($295.4 million); Hampton Roads Bankshares ($80.347 million); and West Bancorporation ($36 million).
Some time after the fact, meanwhile, Treasury has released the “program description” for the Targeted Investment Program that infused Citigroup with $20 billion in additional funds and backstopped $306 billion in troubled assets in exchange for preferred stock. As part of the November 2009 deal, Citi will shoulder first $29 billion in losses, and the government will take on 90 percent of remaining potential losses. Treasury and FDIC are getting $7 billion in Citi preferred stock.
Treasury has decided that other financial institutions will be eligible for the TIP—referred to as the Asset Guarantee Program in Treasury’s December 31 report to Congress—“on a case-by-case basis,” according a department statement. There’s no deadline. The top two considerations are the “extent to which destabilization of the institution could threaten the viability of creditors and counterparties exposed to the institution,” and the “extent to which an institution is at risk of a loss of confidence and the degree to which that stress is caused by a distressed or illiquid portfolio of assets.”
How will the assessments be made? “In making these judgments, Treasury will obtain and consider information from a variety of sources, and will take into account recommendations received from the institution’s primary regulator, if applicable, or from other regulatory bodies and private parties that could provide insight into the potential consequences if confidence in a particular institution deteriorated.” Perfectly clear.