Economic Recovery Task Force

On February 17, 2009, President Obama signed into law the American Recovery and Reinvestment Act of 2009 (the “Act”), Title VII of which imposes new and more stringent limits on executive compensation for participants in the United Stated Department of Treasury (“Treasury”) Troubled Assets Relief Program (“TARP”) under the Emergency Economic Stabilization Act of 2008 (the “EESA”).  These new restrictions apply retroactively and prospectively, to existing and new participants in the TARP Capital Purchase Program, for so long as the TARP participant retains any obligation arising from the financial assistance it received under TARP (the “Restricted Period”). Once the TARP participant has redeemed its preferred stock from Treasury, the restrictions go away — importantly, the restrictions do not apply during any period for which the federal government only holds warrants to purchase common stock of a TARP participant. In addition, Title VII of the Act permits TARP participants, with the approval of the Secretary of the Treasury (the “Secretary”) and the applicable federal bank regulatory agency, to redeem its preferred stock at any time, notwithstanding the original restrictions on redemption set forth in the EESA. (more…)

In an effort to help institutions unfreeze lending and spur economic growth, the Federal government—drawing on funds from the recently passed $700 billion bank rescue plan—will commit up to $250 billion to purchase preferred equity shares in financial institutions, with $125 billion of that amount directed at nine large financial institutions.  The remaining $125 billion will be directed to small and midsize institutions that must elect to participate in the program by November 14, 2008.  Allocation decisions will be made thereafter, following consultation with the appropriate banking agency (Treasury Announces TARP Capital Purchase Program Description).  The capital infusion plan was formulated jointly by the U.S. Department of Treasury (the “Treasury”), the Board of Governors of the Federal Reserve System (the “Fed”) and the Federal Deposit Insurance Corporation (the “FDIC”) and is accompanied by efforts to allow the FDIC to temporarily guarantee, for a fee, certain types of new debt called senior unsecured debt issued by banks and thrifts, and for the Fed to finalize a program to serve as a buyer of last resort for commercial paper. (more…)