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Treasury Updates FAQ; Provides More Guidance on Application

The Treasury has again updated its TARP Capital FAQ.  The Treasury first repeats its recent announcements regarding the November 14th deadline.

The deadline for public companies is November 14, 2008.  The Department of Treasury will provide a separate deadline for private companies when the term sheet for private companies is made available.  Both the term sheet for private companies and the applicable deadline will be posted on the Department of Treasury’s website.

The Treasury then attempts to clarify what constitutes a “public” company for deadline purposes.

A “public” bank, savings association, bank holding company, or savings and loan holding company is a company (1) whose securities are traded on a national securities exchange and (2) required to file, under the federal securities laws, periodic reports such as the annual (Form 10- K) and quarterly (Form 10-Q) reports with either the Securities and Exchange Commission or their primary federal bank regulator.  A company may be required to do so by virtue of having securities registered under Section 12 of the Securities Exchange Act (Exchange Act) which applies to all companies that are traded on an exchange or that have $10 million in assets and 500 shareholders or Section 15(d) of the Exchange Act which requires companies that have filed a Securities Act registration statement and have 300 or more shareholders to file reports required under Section 13 of the Exchange Act, e.g., periodic reports.

Unfortunately, this explanation does not clarify whether a “public” institution must satisfy both conditions or either condition.  The question remains whether a company that does not have securities traded on a national securities exchange but is required to file periodic reports is a “public” institution under the Treasury’s interpretation.  The plain language of Treasury’s explanation suggests that both conditions must be met, as the answer uses “and” to describe the two tests.  However, the second prong (as noted in the second sentence of the answer) will always be true if the first prong is satisfied.  As a result, if both prongs must be satisfied, then only the first prong matters, but if either prong is sufficient to constitute a “public” company, then only the second prong matters.

We will try to followup again with all federal agencies for further clarification.  Until and unless further clarification is made, our earlier advice on how to proceed remains applicable.

The updated FAQs also provide guidance on the following:

  • new bank holding companies (okay so long as completed before December 31, 2008);
  • new banks (okay only if the bank is in existence as of November 14, 2008);
  • making applications amendments permissible rather than mandatory if the investment agreements are modified subsequent to application submission; and
  • clarification that the warrant exercise price is calculated based on the average of the closing prices of the applicant’s common stock on the 20 trading days ending on the last trading day prior to the date the applicant’s application for participation in the Capital Purchase Program was preliminarily approved by the Department of the Treasury.
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What does the November 14th Deadline Mean?

When the Treasury announced the TARP Capital program on October 14, 2008, the program was available to those that “elect to participate before 5:00 pm (EDT) on November 14, 2008.”

On October 31, 2008, Treasury announced that the deadline was only for “publicly traded eligible institutions” and that Treasury would establish “a reasonable deadline for private institutions to apply.”

On November 10, 2008, Interim Assistant Secretary Neel Kashkari stated “The November 14 deadline will be extended for private banks so they have time to apply.”

So to whom does the deadline apply, and what does it mean?

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FDIC Updates FAQ on Temporary Liquidity Guarantee Program

On November 7, 2008, the FDIC updated its Frequently Asked Questions on the Temporary Liquidity Gurantee Program.  New questions are presented in bold type.  The FAQ provides additional guidance in connection with the interim rule implementing the Temporary Liquidity Guarantee Program.

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Assistant Secretary Kashkari Provides Update on TARP Capital

In comments today at the SIFMA Summit, Interim Assistant Secretary for Financial Stability, Neel Kashkari, gave an update on the Treasury Department’s implementation of the TARP Capital program.  As noted by Mr. Kashkari, the TARP Capital program was announced just days ago, and while much work remains to be done, incredible progress has been made in implementing the program so far.

Two Policy Objectives

Mr. Kashkari emphasized two policy objectives:

  1. The TARP Capital program is intended to strengthen our financial system by increasing the capital base of a broad array of institutions.
  2. The TARP Capital program aims to increase the flow of financing to businesses and consumers to support our economy.

Application Timing and Availability of Funds

Mr. Kashkari noted that Treasury believes there is sufficient capital allocated for all qualifying institutions and emphasized that the program is not being implemented on a first-come, first-served basis.  Mr. Kashkari also emphasized that the Treasury is working hard to finalize and publish the required legal documents so private banks can participate on the same economic terms as public banks.  He noted that the deadline will be extended for private banks.

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The Shifting Boundaries of the TARP Capital Purchase Program

On November 7, 2008, Katherine Koops presented The Shifting Boundaries of the TARP Capital Purchase Program at the Georgia Bankers Association’s Economic Stabilization Act and Bank Capital Workshop.  The presentation addresses the following questions:

  • Are we eligible?
  • What would we be issuing?
  • Should we participate?
  • How do we apply?
  • Are there any lead time issues?
  • How does this affect executive compensation?
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GBA Communications Guide for TARP Capital Program

November 9, 2008


The Georgia Bankers Association has published a Communications Guide on the Treasury’s Capital Purchase Program that provides useful talking points regarding a bank’s decision on participating in the TARP Capital program.

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TARP Jokes

November 6, 2008


TARP Jokes

November 6, 2008

Authored by: Bryan Cave

Q. What did Treasury use to put the Capital Purchase Program together?
A. Duct TARP.

Q. What do you call a bank that’s been turned down by Treasury?
A. TARPooned!

Q. What is a banker’s favorite breakfast food?
A. PopTARPs.

Q. What do you use to remove a bad loan from your books?
A. TARPentine.

Q. Knock Knock
A. Who’s There?

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Federal Reserve TARP Capital Review for Public Member Banks

We are beginning to receive some indication of how the Federal Reserve will be reviewing TARP Capital Applications for public member banks.  As institutions begin to file applications in greater numbers, we believe the review process is starting to gel from a methodological standpoint (although the regulators still say they receive new guidance daily).  We have not yet had any indication as to how consistent this review methodology may be between regulatory agencies.

We understand that the review will generally consist of a 3-part process:

  • First, the regional director of applications risk will serve as an initial point-of-contact person who will review the application and any follow-up materials that may be requested.  The plan is for this initial review period to take approximately 3 days, although this time period could be extended, depending on the circumstances of a particular application and the volume of applications being processed.
  • Second, the application will be passed along to a 5-member panel.  This panel will review the application and make the decision as to whether an “invest” recommendation should be made to Treasury.
  • Finally, Treasury will make its ultimate investment decision, based in large part on the recommendation of the regulators.

The review process, from the filing of an application to an ultimate decision by Treasury to fund, may be completed in as little as 5-7 days, although this process could be drawn out considerably, based on the circumstances.

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FDIC Extends Opt Out Deadline for Temporary Liquidity Guarantee Programs

On November 3, 2008, the FDIC extended the deadline for opting out of either component of the Temporary Liquidity Guarantee Program from November 12, 2008 until December 5, 2008.  Failure to opt out by December 5, 2008 will constitute a decision to continue to participate in both the debt guarantee and transaction account guarantee programs. (Based on conversations with representatives of the FDIC on Monday, the FDIC does not expect any institution to opt out of the non-interest bearing transaction account guarantee program.)

Decisions to opt out or remain in are irrevocable, and will be made via the FDIConnect system.  Election forms will be available starting November 12, 2008, and will require certification by the institution’s Chief Financial Officer.

All eligible entities within the same holding company structure, including the holding company itself, must make the same decision regarding continued participation in either or both programs.  Eligible entities that do not opt out of the debt guarantee program must report the amount of outstanding senior, unsecured debt as of September 30, 2008, that is scheduled to mature on or before June 30, 2009.

The FDIC has also published a Sample Election Form, Election Form Instructions and Guidance for Election Options and Reporting Requirements.

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Updated Guidance from Regulators

Updated Guidance from Regulators

November 5, 2008

Authored by: Robert Klingler

Over the last several days, we’ve had a number of conversations with the federal banking regulators on TARP Capital applications.  Although this guidance has not proved to be entirely consistent across agencies, we wanted to pass it along as we have it.  We have identified the federal regulatory agency which provided us the guidance, but we generally expect some degree of uniformity across agencies.

In addition to discussing the treatment of non-exchange listed public companies, private companies, and Sub S companies, the Federal Reserve Bank of Atlanta also emphasized that the Treasury Department intends to invest only in entities that are “viable,” with viability being determined on a case-by-case basis.  The OCC has separately provided guidance that, as a rule of thumb, an applicant must be viable without the TARP Capital in order to be approved to received TARP Capital.  Based on our conversations with regulators last week, we continue to believe the best indicator of viability is the ability of the applicant to earn money operationally, i.e. pre-tax and pre-provision, which is also known as “pre pre” earning).

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