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UNITED STATES DEPARTMENT OF THE TREASURY 

TRANCHE REPORT TO CONGRESS 

FOR THE PERIOD THROUGH NOVEMBER 14, 2008 

I. INTRODUCTION

This Second Tranche Report to Congress (Second Tranche Report) is the second report under 

section 105(b) of the Emergency Economic Stabilization Act of 2008 (EESA). The Second 

Tranche Report satisfies the requirements for reporting at the $150 billion cumulative 

commitment level and is required because Treasury has made funding commitments of 

approximately $158.5 billion under EESA. Treasury will submit the next tranche report when 

the commitment level reaches the $200 billion level. 

The Second Tranche Report addresses the following six areas as required by EESA section 

105(b)(1): 

• A description of all the transactions made during the reporting period. 

• A description of the pricing mechanism for the transactions. 

• A justification of the price paid for, and other financial terms associated with, the 

transactions. 

• A description of the impact of the exercise of such authority on the financial system. 

• A description of challenges that remain in the financial system, including any 

benchmarks yet to be achieved. 

• An estimate of additional actions under the authority provided pursuant to EESA that 

may be necessary to address such challenges. 

II. TRANSACTION INFORMATION BY PROGRAM 

Treasury has announced two programs to purchase troubled assets under EESA, the Capital 

Purchase Program (CPP) and the Systemically Significant Failing Institution Program (SSFI). 

Treasury published the program description for the CPP on October 14, 2008, and completed its 

first transactions under that program on October 28, 2008. We reported on these transactions, 

which totaled $125 billion, in the First Tranche Report on November 4. Treasury completed a 

second set of transactions under the CPP on November 14, 2008, bringing the total amount of 

funds committed under the CPP program to $158.5 billion. We discuss these recent transactions 

in this report. 

On November 10, Treasury announced an agreement in principle for a $40 billion purchase of 

preferred shares of American International Group, Inc. (AIG) under the SSFI program. 

Concurrent with publishing this report, Treasury published a description of the SSFI program on 

its web site. Since the transaction has not been completed as of the time of this report, we will 

discuss the SSFI Program and the AIG transaction in the next tranche report, when Treasury 

reaches the $200 billion level. 
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Capital Purchase Program 

The purpose of the CPP is to encourage U.S. financial institutions to build their capital base, 

which in turn will increase the capacity of those institutions to lend to U.S. businesses and 

consumers and to support the U.S. economy and stabilize the financial system. The terms of the 

investment limit certain uses of capital by the issuer, including most repurchases of company 

stock, and increases in dividends. Under this voluntary program, Treasury will purchase up to 

$250 billion of senior preferred shares on standardized terms, which will include warrants for 

future Treasury purchases of common stock. The CPP is available to qualifying U.S. controlled 

banks, savings associations, and certain bank and savings and loan holding companies engaged 

solely or predominately in financial activities permitted under the relevant law. 

Through November 14, Treasury has signed final agreements with 30 financial institutions. On 

October 28, 2008, Treasury completed capital purchase transactions with 8 of these institutions 

for a total of $115 billion. Treasury completed capital purchase transactions with an additional 

21 institutions on November 14, 2008 for a total of $33.5 billion. Funding of the capital 

purchase transaction for the thirtieth institution will be made sometime before January 31, 2009 

in the amount of $10 billion. A report listing each of these transactions has been published on 

Treasury’s web site. 

All commitments thus far under the CPP have been with financial institutions whose stock is 

traded on national securities exchanges. The terms of the program for non-publicly held 

financial institutions (excluding S corporations and Mutual Organizations) whose stock is not 

traded on national securities exchanges were released on November 17 and these institutions 

have until December 8 to apply. The application process – with standardized forms and 

standardized review – encourages banks and thrifts of all sizes to participate in the CPP. To 

apply for the CPP, financial institutions review the program information on the Treasury website 

and then consult with their Federal banking agency. After this consultation, institutions submit 

an application to that same Federal banking agency. 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. These 

amounts are determined at the discretion of the Treasury reflecting the recommendations of the 

Federal banking agency. 

Treasury has worked with the Federal banking agencies to establish streamlined evaluation 

procedures; this means that all Federal banking agencies use a standardized process to review all 

applications to ensure consistency. Once a regulator has reviewed an application, it sends the 

application along with its recommendation to the Office of Financial Stability at Treasury. Once 

Treasury receives the application with the Federal banking agency’s recommendation, Treasury 

reviews it and decides whether or not to make the capital purchase. Treasury values the 

expertise of the Federal banking agencies, and gives considerable weight to their 

recommendations. Consistent with the provisions of EESA, all transactions are publicly 

announced within 2 business days of completion. Treasury will not, however, announce any 

applications that are withdrawn or denied. 
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Treasury created the CPP to encourage U.S. financial institutions to obtain capital to strengthen 

the financial system and increase the flow of financing to U.S. businesses and consumers. In 

order for the CPP to achieve its objective, a broad class of financial institutions must participate. 

Therefore, Treasury is making capital temporarily available on attractive terms to a broad array 

of banks and thrifts, so they can provide credit to our economy. The federal regulatory agencies 

issued a joint interagency statement on November 12 with respect to lending to creditworthy 

borrowers. 

Treasury has offered the same basic terms to all financial institutions participating in the CPP. 

Because of the differences between publicly-traded and non-publicly traded financial 

institutions, there are separate term sheets for each type of financial institution. Treasury, in 

consultation with the Federal banking regulators, set the preferred stock coupon rate at 5 percent 

for the first five-years after purchase in order to encourage financial institutions across the 

country to utilize this program. The dividend rate steps up to 9 percent after five years. The 

terms of the preferred shares contain certain provisions to protect the taxpayer. These terms 

include a restriction on paying dividends for both preferred shares equal or junior to Treasury’s 

investment and common shares unless the institution is currently paying full dividends to 

Treasury (subject to certain exceptions), a restriction on increasing common dividends, and 

limits on the institution’s ability to repurchase other preferred and common shares within 3 years 

after the Treasury investment. In addition, pursuant to EESA requirements, under terms 

applicable to publicly held financial institutions, Treasury also receives warrants for common 

shares in participating institutions to allow the taxpayer to benefit from any appreciation in the 

market value of the institution. Under terns applicable to non-publicly held financial institutions, 

Treasury receives warrants for preferred shares that bear dividends at a rate of 9% per annum. 

Institutions that sell shares to the government also accept restrictions on executive compensation 

promulgated under EESA during the period that Treasury holds equity issued through the CPP. 

Treasury expects all participating institutions to increase their lending activities in a safe and 

sound manner to benefit U.S. businesses and consumers. 

Appendix 1 contains the detailed transaction report through November 14 as released on 

November 17, 2008. Appendix 2 contains the CPP term sheet for non-publicly held financial 

institutions. 

III. ASSESSMENT OF CURRENT MEASURES AND THE CHALLENGES AHEAD 

Impact of the Transactions 

Treasury’s initial objective has been to stabilize the financial system and the CPP, in conjunction 

with the FDIC’s guarantee of certain financial institution debt, has been essential in 

accomplishing that objective. Capital purchases are clearly powerful in terms of impact per 

dollar invested. More capital enables banks to withstand losses as they write down or sell 

troubled assets and stronger capitalization is also vital to increasing lending, an essential element 

for economic recovery. Through the CPP, we have added over $158 billion into the banking 

system’s capital structure. 
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Treasury has moved rapidly to review applications and make investments in federally regulated 

banks and thrifts. In one month, Treasury completed transactions with 30 financial institutions. 

We have granted preliminary approval of applications for dozens of additional institutions as 

well and are working with these institutions to complete the legal agreements and fund the 

investments. A term sheet for non-publicly traded financial institutions (excluding S 

corporations and Mutual Organizations) has been released and there is continued interest in 

participating in the CPP from financial institutions of all sizes. 

Challenges That Lie Ahead and Additional Actions

Since initiating the CPP, Treasury has been examining a wide range of ideas that can further 

strengthen the financial system and revive lending to support the broader economy. Because the 

system remains fragile, systemic failures must be prevented as illustrated by the AIG 

announcement. 

Treasury has three critical priorities for investing the remaining TARP funds. We will continue 

to reinforce the stability of the financial system, so that banks and other institutions are able to 

support economic recovery and growth. For example, approaches are being evaluated that will 

leverage TARP funding through matching investments. We are also exploring ways to support 

markets for securitizing credit outside the banking system. This vital market has, for all practical 

purposes, ground to a halt. With the Federal Reserve, Treasury is exploring the development of 

a liquidity facility for highly rated asset-backed securities. In addition, we are evaluating ways 

to reduce the risk of foreclosure. Treasury will continue its efforts to support the variety of 

programs across government that are already well underway.