14 October 2008

Summary of US government actions to strengthen market stability

“These actions are not what we ever wanted to do”, Secretary Paulson said. Fed Chairman Bernanke commented that  “clearly the time had come for a more comprehensive and broad-based solution”.

The summary provides an overview of measures undertaken by the US Government. “These actions are not what we ever wanted to do”, Treasury Secretary Paulson said, announcing that the Treasury will purchase equity stakes in banks and thrifts.

 

“We will not stand down until we have achieved our goals of repairing and reforming our financial system”, Federal Reserve Chairman Ben Bernanke said. “clearly the time had come for a more comprehensive and broad-based solution.”

 

Purchasing Capital in Financial Institutions

Under the authority of the Emergency Economic Stabilization Act of 2008, the U.S. Treasury will make available $250 billion of capital to U.S. financial institutions. This facility will allow banking organizations to apply for a preferred stock investment by the U.S. Treasury. Nine large financial organizations have already indicated their intention to subscribe to the facility in an aggregate amount of $125 billion.

 

Guaranteeing Certain Obligations of Financial Institutions

FDIC will temporarily guarantee the senior debt of all FDIC-insured institutions and their holding companies, as well as deposits in non-interest bearing deposit transaction accounts. Regulators will implement an enhanced supervisory framework to assure appropriate use of this new guarantee. The ability to issue guaranteed debt under the program would expire on June 30, 2009 and the full protection for deposits in non-interest bearing transaction deposit accounts would revert back to the statutory limits on December 31, 2009.

 

Purchasing Commercial Paper

The Federal Reserve has announced further details of its Commercial Paper Funding Facility (CPFF) program, which provides a broad backstop for the commercial paper market. Beginning October 27, the CPFF will be able to purchase commercial paper of 3 month maturity from high-quality issuers.

 

Summary

Joint statement by Treasury, Federal Reserve and FDIC

Statement Paulson

Statement Bair

Statement Bernanke