The Capital Assistance Program is a
U.S. Treasury program that provides capital injections in exchange for mandatory convertible
preferred stock and
warrants
Warrant may refer to:
* Warrant (law), a form of specific authorization
** Arrest warrant, authorizing the arrest and detention of an individual
** Search warrant, a court order issued that authorizes law enforcement to conduct a search for eviden ...
to bank holding companies.
Background and timeline
As part of the
Emergency Economic Stabilization Act of 2008 the U.S. Treasury was given funds to stabilize U.S. financial institutions and encourage lending. The
Troubled Asset Relief Program (TARP) was to be implemented in two $350 billion authorizations. The first $350 billion went primarily to the
Capital Purchase Program The Capital Purchase Program or CPP is a preferred stock and equity warrant purchase program conducted by the US Treasury Office of Financial Stability as part of Troubled Asset Relief Program (aka, TARP). According to the first congressionally man ...
primarily allocated under the direction of U.S. Treasury Secretary
Henry Paulson
Henry Merritt Paulson Jr. (born March 28, 1946) is an American banker and financier who served as the 74th United States Secretary of the Treasury from 2006 to 2009. Prior to his role in the Department of the Treasury, Paulson was the Chairman a ...
an appointee of
George W. Bush
George Walker Bush (born July 6, 1946) is an American politician who served as the 43rd president of the United States from 2001 to 2009. A member of the Republican Party, Bush family, and son of the 41st president George H. W. Bush, he ...
.
[
] The new
Barack Obama appointee, U.S. Treasury Secretary
Timothy Geithner, announced the Capital Assistance Program on February 10, 2009.
[
]
Features of the program
Money is given in exchange for
preferred stock that pays a 9 percent dividend. The preferred stock is automatically converted into
common stock at the end of seven years. The banks receiving funds will be restricted in paying dividends, buying back their stock, and buying other firms with cash. Because preferred stock is similar to debt in that it gets paid before
common stock, some economists have questioned whether the buying of
preferred stock by both the Capital Assistance Program and the Capital Purchase Program will be effective in getting banks to lend efficiently.
See also
References
{{Subprime mortgage crisis
Troubled Asset Relief Program