Capital Assistance Program
Encyclopedia
The Capital Assistance Program is a U.S. Treasury program that provides capital injections in exchange for mandatory convertible preferred stock
and warrants
to bank holding companies.
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 dollar authorizations. The first $350 billion went primarily to the Capital Purchase Program
primarily allocated under the direction of U.S. Treasury Secretary Henry Paulson
an appointee of George W. Bush
. The new Barack Obama
appointee, U.S. Treasury Secretary Timothy Geithner, announced the Capital Assistance Program on February 10, 2009.
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.
Preferred stock
Preferred stock, also called preferred shares, preference shares, or simply preferreds, is a special equity security that has properties of both an equity and a debt instrument and is generally considered a hybrid instrument...
and warrants
Warrant (finance)
In finance, a warrant is a security that entitles the holder to buy the underlying stock of the issuing company at a fixed exercise price until the expiry date....
to bank holding companies.
Background and timeline
As part of the Emergency Economic Stabilization Act of 2008Emergency Economic Stabilization Act of 2008
The Emergency Economic Stabilization Act of 2008 The Emergency Economic Stabilization Act of 2008 The Emergency Economic Stabilization Act of 2008 (Division A of , commonly referred to as a bailout of the U.S. financial system, is a law enacted in response to the subprime mortgage crisis...
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 dollar authorizations. The first $350 billion went primarily to the Capital Purchase Program
Capital Purchase Program
The Capital Purchase Program or CPP is a preferred stock and equity warrant purchase program conducted by the US Treasury's Office of Financial Stability as part of Troubled Assets Relief Program...
primarily allocated under the direction of U.S. Treasury Secretary Henry Paulson
Henry Paulson
Henry Merritt "Hank" Paulson, Jr. is an American banker who served as the 74th United States Secretary of the Treasury. He previously served as the Chairman and Chief Executive Officer of Goldman Sachs.-Early life and family:...
an appointee of George W. Bush
George W. Bush
George Walker Bush is an American politician who served as the 43rd President of the United States, from 2001 to 2009. Before that, he was the 46th Governor of Texas, having served from 1995 to 2000....
. The new Barack Obama
Barack Obama
Barack Hussein Obama II is the 44th and current President of the United States. He is the first African American to hold the office. Obama previously served as a United States Senator from Illinois, from January 2005 until he resigned following his victory in the 2008 presidential election.Born in...
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 stockPreferred stock
Preferred stock, also called preferred shares, preference shares, or simply preferreds, is a special equity security that has properties of both an equity and a debt instrument and is generally considered a hybrid instrument...
that pays a 9 percent dividend. The preferred stock is automatically converted into common stock
Common stock
Common stock is a form of corporate equity ownership, a type of security. It is called "common" to distinguish it from preferred stock. In the event of bankruptcy, common stock investors receive their funds after preferred stock holders, bondholders, creditors, etc...
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
Common stock
Common stock is a form of corporate equity ownership, a type of security. It is called "common" to distinguish it from preferred stock. In the event of bankruptcy, common stock investors receive their funds after preferred stock holders, bondholders, creditors, etc...
, some economists have questioned whether the buying of preferred stock
Preferred stock
Preferred stock, also called preferred shares, preference shares, or simply preferreds, is a special equity security that has properties of both an equity and a debt instrument and is generally considered a hybrid instrument...
by both the Capital Assistance Program and the Capital Purchase Program will be effective in getting banks to lend efficiently.