[print version]
Geithner Announces Administration’s Financial Stability Plan
Feb. 10, 2009
FEI Summary
On Feb. 10, 2009 Secretary of the Treasury, Tim Geithner presented the new administration’s Financial Stability Plan in a live speech in Washington, D.C. His full remarks can be found here.
Geithner began speaking by articulating the crisis: “Without credit, economies cannot grow, and right now, critical parts of our financial system are damaged…We have to both jumpstart job creation and private investment, and we must get credit flowing again to businesses and families…The force of government support [last fall] was not comprehensive or quick enough to withstand the deepening pressure brought on by the financial crisis.”
He released details on three major assistance plans and promised to deliver details on three other programs in the coming weeks. These programs are in addition to the current treasury asset relief program, known as “TARP,” and pending Economic Stimulus Legislation.
Strengthen Banking System, Create Capital Assistance Program:
· A Comprehensive Stress Test for Major Banks
· Increased Balance Sheet Transparency and Disclosure
· Create a Capital Assistance Program
o Institutions that need additional capital will be able to access a new funding mechanism that uses funds from the Treasury as a bridge to private capital.
o The capital assistance provided will come with conditions. It will carry terms that encourage institutions to replace public capital with private [capital] as soon as possible.
o The Treasury's investments in these institutions will be placed in a new Financial Stability Trust. (Treasury’s special Web site www.financialstability.gov pertaining to the current crisis contains resources related to the Financial Stability Plan, including this fact sheet.)
Establish a $1 Trillion Public-Private Investment Fund:
· This program will provide government capital and government financing to help leverage private capital to help get private markets working again for the legacy loans and assets that are now burdening the entire financial system.
· The objective is to use private capital and private asset managers to help provide a market mechanism for valuing these assets.
· The program will start with $500 billion and be expanded based on what works.
Provide $1 Trillion to Jumpstart Consumer and Business Lending
· Program based on the Term Asset Backed Loan Facility (TALF) backed by the Federal Reserve.
· Targets lending for small and large business, consumers, students and real estate and encourages lending from community banks rather than larger entities.
Future Announcements:
In the coming weeks, Geithner promised to unveil three other plans.
· In combination with Christopher Dodd (D-Conn.), Chairman, U.S. Senate Committee on Banking, Housing, and Urban Affairs, and Chairman Barney Frank (D-Mass.), chairman of the House Financial Services Committee, Treasury is working to create a detailed plan to reform the entire system of financial regulation. The President's Working Group on Financial Markets is developing detailed recommendations.
· Geithner stated he would be working closely with the world's leading economies on a set of broader reforms to the international financial system in preparation for the G-20 Summit in London on April 2.
· Finally, details will be released soon on a plan to address the housing crisis by bringing down mortgage payments and reducing mortgage interest as a part of the authority provided in the Economic Stabilization Act.
In closing, Geithner stated, “I want to be candid: this strategy will cost money, involve risk, and take time…..We will have to adapt our program as conditions change. We will have to try things we've never tried before. We will make mistakes. We will go through periods in which things get worse and progress is uneven or interrupted.”
Prepared Feb. 10, 2009 by Cady North, Manager, Government Affairs, Financial Executives International (FEI). This summary does not reflect FEI opinion unless specifically noted above.
[print version]