Credit Crisis Advisory Resource Library
In this series of Credit Crisis Advisories, the Center for Banking Solutions examines the new rules, regulations and operating models that are evolving as the industry sails uncharted waters. Specifically, this collection of articles focuses on: the Emergency Economic Stabilization Act (EESA), the implications of Goldman Sachs and Morgan Stanley becoming bank holding companies, the Troubled Assets Relief Program (TARP) Capital Purchase Program and arrangements to add liquidity to the financial system.
Volume IX: Credit Crisis Advisory: The Credit Card Accountability Responsibility and Disclosure Act of 2009
This analysis on the implications of the Card Act underscores the need for issuers to employ more targeted customer segmentation and to abandon some mass marketing practices of prior years.
Volume VIII: The End of Self Regulated Markets - A Framework for Regulatory Reform
On March 26, 2009, U.S. Treasury Secretary Timothy Geithner unveiled details of the Obama Administration's proposals that call for major changes that would address systemic risk and eliminate gaps in the U.S. regulatory structure. The proposal also expands on the Administration's request for a broad resolution authority that would allow orderly dissolution of insolvent firms' whose failure would threaten the stability of the financial system.
Volume VII: The Public-Private Investment Program
The U.S. Treasury has announced a new program to purchase “legacy” assets currently impacting the U.S. financial system. The program, known as the Public-Private Investment Program (PPIP), involves two plans – one for loans and one for securities. The initiative will seek to purchase $500 billion in troubled assets using approximately $75 to $100 billion of existing Troubled Assets Relief Program (TARP) capital. Over time, this purchasing power could be expanded to $1 trillion, subject to Congressional approval.
Volume VI: The Financial Stability Plan
The new U.S. Treasury secretary announced his $2.5 trillion Financial Stability Plan on Tuesday, February 10. The negative initial investor response was attributed to the absence of specific details. The stock price of U.S. regional banks immediately declined by 20 percent, and the value of major banks fell by 10 percent. The market plunge also may have reflected an expectation that many troubled financial institutions may seek to take on more capital, which would further dilute the holdings of existing shareholders.
Volume V: Declaration of the Summit on Financial Markets and the World Economy
Members of the Group of 20 (G-20) met in Washington, D.C. and agreed to support a coordinated response to the global economic crisis. Among the positions taken by international leaders were a commitment to kick-start growth, improve financial market regulation and provide more say for emerging countries. In their final communiqué, they also endorsed a series of goals to avoid future economic crisis and to revive the global economy.
Volume IV: Stress in Credit Markets II - Liquidity Arrangements
As discussed in the Credit Crisis Advisory Volume I, the EESA was designed primarily to relieve financial institutions of troubled assets and provide them with additional capital to restore confidence in the financial system. It is one of several tools being implemented by the federal government to open up the credit markets. Simultaneously, the Fed continues to provide significant liquidity to the financial system, working in close cooperation with the U.S. Treasury Department. This advisory examines the initiatives taken by the Fed to provide both U.S. and overseas markets with additional liquidity.
Volume III: Stress in the Credit Markets I - Recapitalizing the Banks
Following similar initiatives in Europe, the U.S. Treasury Department, the Federal Reserve Board and the Federal Deposit Insurance Corporation (FDIC) jointly announced on October 14, 2008, a TARP Capital Purchase Program to invest directly in U.S. banks and provide guarantees for newly issued bank unsecured debt. Under this program, $250 billion will be available by year end in what is described as a “voluntary capital purchase program.” The minimum subscription amount available to a participating institution is 1 percent of risk-weighted assets. The maximum subscription amount is the lesser of $25 billion or 3 percent of risk-weighted assets.
Volume II: The Implications of Goldman Sachs and Morgan Stanley Becoming Bank Holding Companies
On September 21, 2008, the Federal Reserve Board approved applications by the two remaining large, independent investment banks, Goldman Sachs and Morgan Stanley, to become bank holding companies (BHCs) based upon the conversion of their industrial loan companies (ILCs) to commercial banks. Given the unusual circumstances affecting financial markets at the time, the board determined that emergency conditions existed and therefore gave expeditious treatment to these proposals. As bank holding companies, the consolidated supervisor of these organizations will be the Federal Reserve. The U.S. Securities and Exchange Commission (SEC) will continue as the functional regulator of the broker dealers. The primary regulator of Morgan Stanley’s subsidiary national bank will be the Office of the Comptroller of the Currency (OCC); Goldman’s state chartered bank will be supervised by the Federal Reserve and the State of New York.
Volume I: The Emergency Economic Stabilization Act of 2008 (EESA)
On Friday, October 3, the Congress and the White House reached agreement on the EESA of 2008. Former President Bush signed the bill into law the same day. The bill provides for the implementation of TARP, whose primary purpose is to remove troubled assets from bank balance sheets.