In advance of releasing the “Stress Test” results (scheduled for 5:00pm on Thursday, May 7, 2009), the Treasury and the federal banking regulators released a joint statement about the Supervisory Capital Assistance Program on May 6, 2009. The joint statement also includes information about the process that will be used for institutions desiring to redeem their TARP Capital Purchase Program Preferred stock.
A few key points about the Stress Test:
- The government intends to announce, for each of the 19 institutions individually and in the aggregate, estimates of: losses and loss rates across select categories of loans; resources available to absorb those losses; and the resulting necessary additions to the capital buffers.
- Any of the 19 needing to raise capital will be given until June 8, 2009 to develop a detailed capital plan, and until November 9, 2009 to implement that plan.
- As part of the capital plan, an institution may apply for Mandatory Convertible Preferred under the TARP Capital Assistance Program, and may convert its existing TARP Capital Purchase Program Preferred shares into the Capital Assistance Program Convertible Preferred shares.
- “Smaller financial institutions generally maintain capital levels, especially common equity, well above regulatory capital standards.”
- Accordingly, the government does not intend to expand the Stress Test beyond the initial 19 bank holding companies (at least officially).
- The Treasury reiterates that the TARP Capital Assistance Program is available to other institutions on the same terms and conditions applicable to the 19 Stress Tested banks. The Treasury intends to process applications received “in an expedient manner.” (No discussion is made of when or if term sheets will be made available for non-publicly traded institutions to participate in the Capital Assistance Program.
