New Liquidity and Capital Alternatives for Financial Institutions: Treasury's TARP Capital Purchase Program; FDIC's Temporary Liquidity Guarantee Program


On October 3rd, the President signed into law the Emergency Economic Stabilization Act of 2008 (Act), which authorized the Treasury Secretary (Treasury) to establish the Troubled Assets Relief Program (TARP) to purchase ?troubled assets.? On October 14th, the TARP Capital Purchase Program (CaPP), through which Treasury will make capital investments in banking institutions, was announced.

Also on October 14th, the FDIC announced the Temporary Liquidity Guaranty Program (TLGP): a new guarantee program for certain banking institution liabilities. These, together with the expanded Federal Reserve Commercial Paper Funding Facility, were structured to unfreeze inter bank lending and encourage lending more broadly.

Below we discuss the details currently available on CaPP and the FDIC?s TLGP, and the potential impact on capital raising by financial institutions. For a detailed discussion of the TARP, recent action by the Federal Reserve and the FDIC, impact of the Act and tax impacts and considerations, consult our recent Client Alert ?TARP and the Various Federal Tent Poles: Will it be Enough??

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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