FAQs on The Capital Assistance Program (CAP)

Q1. Who can access the CAP program? 

Generally speaking, any bank holding company, financial holding company, insured 

depository institution and savings and loan holding company, that engages solely or 

predominately in activities that are permissible for financial holding companies under 

relevant law, and that is organized and operating in the United States, qualifies as a QFI if 

it is deemed viable by the appropriate Federal banking agency. Financial institutions 

controlled by a foreign entity will not be eligible. For purposes of the Capital Assistance 

Program (CAP) eligibility, the deadline for approval of any pending holding company 

application is January 15, 2009, i.e. the same as the deadline for CPP eligibility. 

Specifically, a QFI is defined as: (i) Any U.S. bank or U.S savings institution not 

controlled by a Bank Holding Company (“BHC”) or Savings and Loan Company 

(“SLHC”); (ii) any top-tier U.S. BHC; and (iii) any top-tier U.S. SLHC which engages 

solely or predominately in activities that are permitted for financial holding companies 

under relevant law. A “QFI” shall not mean any BHC, SLHC, bank or savings 

association controlled by a foreign bank or company.

Q2: What is the deadline to apply to the CAP? 

The deadline for all institutions has been extended to November 9, 2009. Institutions that 

receive preliminary approval from Treasury will have until November 9, 2009 to close 

the transaction.

Q3. How does CAP work? What type of securities can be issued under CAP? 

To ensure that the banking system has the capital it needs to provide the credit necessary 

to support economic growth, the Treasury is making capital available under its Capital 

Assistance Program as a bridge to private capital in the future. A BHC may apply for 

Mandatory Convertible Preferred (MCP) in an amount up to 2% of risk-weighted assets 

(or higher upon request). MCP can serve as a source of contingent common capital for 

the firm, convertible into common equity when and if needed to meet supervisory 

expectations regarding the amount and composition of capital. Treasury will consider 

requests to exchange outstanding preferred shares sold under the CPP or the Targeted 

Investment Program (TIP) for new mandatory convertible preferred issued under the 

CAP. In order to protect the taxpayer interest, the Treasury expects that any exchange of 

Treasury-issued preferred stock for MCP will be accompanied or preceded by new capital 

raises or exchanges of private capital securities into common equity. 

The MCP instrument is designed to give banks the incentive to redeem or replace the 

government-provided capital with private capital when feasible. The term sheet for MCP 

is available at www.financialstability.gov. 
Q4. Will firms that access the CAP be subject to additional terms and conditions beyond 

those that apply to firms accessing CPP? 

Recipients of capital under the CAP will be required to submit a plan for how they intend 

to use the capital to increase lending activities above levels relative to what would have 

been possible without government support. This plan will be submitted during the 

application process, and the Treasury Department will make these plans public upon 

distribution of the capital investment to the firm. These firms must also submit monthly 

and quarterly reports to Treasury on their lending by category and will include a 

comparison to estimates of what their lending would have been in the absence of 

government support. All these reports will be put on FinancialStability.gov. 

All CAP recipients will also commit to participate in the Home Affordable Modification 

Program. They will also be required to comply with final version of the executive 

compensation restrictions when announced. 

To ensure that any taxpayer dollars invested by the government under the CAP improve 

banks’ capital bases and promote lending, any firm accepting assistance under the CAP 

will be subject to the following restrictions until it repays all funds provided to it under 

the CAP: 

1. Restricted from paying quarterly common stock dividend payments in excess of 

$0.01 per share unless approved by Treasury and the primary regulator as 

consistent with the firm reaching its capital planning objectives. 

2. Restricted from repurchasing common stock, preferred stock, or trust preferred. 

Special approval for share repurchases may be granted by the Treasury 

Department and the banking institution’s primary regulator. 

3. Restricted from pursuing acquisitions. Banking institutions that receive CAP 

funds are restricted from pursuing cash acquisitions of healthy firms until the 

government investment is refinanced. Exceptions will be made for regulatorapproved restructuring plans. 

Q5. Can banks that did not participate in the SCAP access the CAP? 

Yes. Banks outside of the 19 institutions that participated in the SCAP can access the 

CAP. 

Q6. What criteria will Treasury use for granting preliminary approval for the CAP? 

For institutions that participated in the SCAP, Treasury will rely on the assessments 

completed by the banking supervisors, and seek to understand how CAP fits into an 

institution’s broader capital plan. 
For the institutions that did not participate in SCAP, Treasury will use the existing 

viability standard (which formed the basis of all investment decisions made in the CPP) 

and rely on the recommendations of the bank’s supervisors. The viability standard states 

that an institution must be deemed viable without Treasury’s investment. 

Q7. Can firms that repay their CPP access CAP at a later date? 

Applications for CAP will only be accepted until November 9, 2009. 

Q8. Will banks that did not go through the SCAP, but wish to access the CAP be forced 

to undergo their own stress test? 

There are no plans to put other banking institutions through the SCAP. 

However, in making their recommendations to Treasury for CAP approval, supervisors 

will review those firms’ risk profiles and capital positions. They will evaluate the firms’ 

internal capital assessment processes, including capital planning efforts that incorporate 

the potential impact of stressful market conditions and adverse economic outcomes. 

Q9. Should a CAP applicant notify Treasury of its application? 

No. Banks should work through their primary federal regulator. 

Q10. If an institution voluntarily applies for and is preliminarily approved by Treasury 

to participate in the CAP, may that institution later decide that it does not want to close 

the CAP transaction? When such an institution is preliminarily approved for a CAP 

investment, what is the period of time within which the transaction must be 

consummated? 

If an institution that did not participate in the SCAP applies and is preliminarily approved 

for CAP, they are not obligated to close the transaction. Institutions receiving 

preliminary approval will have until November 9, 2009 to decide whether or not to 

complete the transaction. Institutions that did participate in the SCAP will not be 

required to complete the transaction either, but must work with their supervisors to ensure 

that they meet the SCAP buffer. 

Q11. The term sheet states that CAP is redeemable at par, plus accrued and unpaid 

dividends within the first two years of issuance. Does the two year period begin on the 

preliminary approval date or the closing date? 

The 2-year period begins on the date of preliminary approval. 

Q12. The CAP term sheet section on Size states the following: "each QFI may issue an 

amount of CAP equal to not less than 1% of RWA and not more than 2% of RWA plus 

any CAP to the extent the proceeds of such additional CAP are used to redeem CPP or 

TIP". Would you please explain this? 
CAP issuance can potentially be used in part to redeem CPP or TIP, and Treasury will 

consider requests to exchange outstanding preferred shares. Institutions that have already 

issued preferred equivalent to 3% of RWA under CPP, may apply issue MCP under CAP 

of up to 5% of RWA as long as MCP equivalent to 3% of RWA is used to redeem the 

original CPP investment. 

In order to protect the taxpayer interest, the Treasury expects that any exchange of 

Treasury-issued preferred stock for MCP will be accompanied or preceded by new capital 

raises or exchanges of private capital securities into common equity. 

Q13. If a financial institution has multiple TARP preferred stock series, can they choose 

which series to convert to CAP? 

No. The CPP series should be converted first. 

Q14. If a financial institution converts a CPP or TIP series into CAP, can the institution 

choose the order in which it pays off the CPP, TIP and CAP in the future? 

Yes. Financial institutions have discretion on which securities to repay first. 

Q15. Does the "dividend stopper" only require stopping dividends on other shares if 

dividends on the CAP are not current? 

Yes. 

Q16. Is the 20% requirement for warrants incremental to or in aggregate with the 

existing warrants on the converted CPP or TIP? 

The warrant requirement is incremental. 

Q17. Can an institution purchase warrants prior to redeeming the CAP? What happens 

to any warrants issued under CPP? 

No, the warrants can only be purchased following redemption in whole of the MCP. A 

security issued under the CAP, if for the full amount of preferred issued under CPP, 

counts as a qualified equity offering, and cuts the number of warrants issued under CPP 

in half. 

Q18. Will Treasury’s agreement to sell shares over five years (which begins on 

mandatory conversion) start immediately after voluntary conversion or at a different 

time? 

Yes. It will begin on the date of optional/voluntary conversion. 
Q19. What additional executive compensation restrictions, if any, will be placed on CAP 

recipients? 

The Treasury’s regulations will provide further clarity around executive compensation. 

These details are expected to be released soon.