U.S. Treasury Provides Guidance on Capital Purchase Program

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Yesterday, the U.S. Treasury issued guidance on how banks can take part in the Capital Purchase Program. The program allows the Treasury to infuse cash into banks in return for non-voting stock. Last week, the Treasury announced that an initial $250 billion of the $700 billion economic rescue package would be invested through the Capital Purchase Program. Bank holding companies, financial holding companies, insured depository institutions, and certain savings and loan holding companies are eligible for the program. Foreign banks are not eligible. Participating institutions must agree to certain terms and conditions including limits on executive compensation. At this time, the program is limited to public companies, however, the rescue legislation clearly contemplates that the benefits would flow to non-public institutions including those which cannot issue preferred stock. Further clarification of these issues from the Treasury is expected.

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