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 FACT SHEET 

 FINANCIAL STABILITY PLAN

The Financial Stability Plan: Deploying our Full Arsenal to Attack the Credit Crisis on All Fronts. Today, our 

nation faces the most severe financial crisis since the Great Depression. It is a crisis of confidence, of capital, of 

credit, and of consumer and business demand. Rather than providing the credit that allows new ideas to flourish into 

new jobs, or families to afford homes and autos, we have seen banks and other sources of credit freeze up – 

contributing to and potentially accelerating what already threatens to be a serious recession. Restarting our economy 

and job creation requires both jumpstarting economic demand for goods and services through our American 

Recovery and Reinvestment Act and simultaneously ensuring through our new Financial Stability Plan that 

businesses with good ideas have the credit to grow and expand, and working families can get the affordable loans 

they need to meet their economic needs and power an economic recovery. 

To address the financial crisis, the Financial Stability Plan is designed to attack our credit crisis on all fronts with 

our full arsenal of financial tools and the resources commensurate to the depth of the problem. To be successful, we 

must address the uncertainty, troubled assets and capital constraints of our financial institutions as well as the frozen 

secondary markets that have been the source of around half of our lending for everything from small business loans 

to auto loans. 

To protect taxpayers and ensure that every dollar is directed toward lending and economic revitalization, the 

Financial Stability Plan will institute a new era of accountability, transparency and conditions on the financial 

institutions receiving funds. To ensure that we are responding to this crisis as one government, Secretary Timothy 

Geithner — working in collaboration and joined by Federal Reserve Chairman Ben Bernanke, FDIC Chair Sheila 

Bair, Office of Thrift Supervision Director John Reich and Comptroller of the Currency John Dugan – is bringing 

the full force and full range of financial tools available to cleaning up lingering problems in our banking system, 

opening up credit and beginning the process of financial recovery.

 

Financial Stability Plan

1. Financial Stability Trust 

• A Comprehensive Stress Test for Major Banks 

• Increased Balance Sheet Transparency and Disclosure 

• Capital Assistance Program 

2. Public-Private Investment Fund ($500 Billion - $1 Trillion) 

3. Consumer and Business Lending Initiative (Up to $1 trillion) 

4. Transparency and Accountability Agenda – Including Dividend 

Limitation 

5. Affordable Housing Support and Foreclosure Prevention Plan 

6. A Small Business and Community Lending Initiative 
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FINANCIAL STABILITY PLAN

1. Financial Stability Trust: A key aspect of the Financial Stability Plan is an effort to strengthen our 

financial institutions so that they have the ability to support recovery. This Financial Stability Trust 

includes: 

a. A Comprehensive Stress Test: A Forward Looking Assessment of What Banks 

Need to Keep Lending Even Through a Severe Economic Downturn: Today, 

uncertainty about the real value of distressed assets and the ability of borrowers to 

repay loans as well as uncertainty as to whether some financial institutions have the 

capital required to weather a continued decline in the economy have caused both a 

dramatic slowdown in lending and a decline in the confidence required for the 

private sector to make much needed equity investments in our major financial 

institutions. The Financial Stability Plan will seek to respond to these challenges 

with: 

• Increased Transparency and Disclosure: Increased transparency will 

facilitate a more effective use of market discipline in financial markets. The 

Treasury Department will work with bank supervisors and the Securities and 

Exchange Commission and accounting standard setters in their efforts to 

improve public disclosure by banks. This effort will include measures to 

improve the disclosure of the exposures on bank balance sheets. In 

conducting these exercises, supervisors recognize the need not to adopt an 

overly conservative posture or take steps that could inappropriately constrain 

lending. 

• Coordinated, Accurate, and Realistic Assessment: All relevant financial 

regulators — the Federal Reserve, FDIC, OCC, and OTS — will work 

together in a coordinated way to bring more consistent, realistic and forward 

looking assessment of exposures on the balance sheet of financial 

institutions.. 

• Forward Looking Assessment – Stress Test: A key component of the Capital 

Assistance Program is a forward looking comprehensive “stress test” that 

requires an assessment of whether major financial institutions have the 

capital necessary to continue lending and to absorb the potential losses that 

could result from a more severe decline in the economy than projected. 

• Requirement for $100 Billion-Plus Banks: All banking institutions with 

assets in excess of $100 billion will be required to participate in the 

coordinated supervisory review process and comprehensive stress test.

b. Capital Assistance Program: While banks will be encouraged to access private 

markets to raise any additional capital needed to establish this buffer, a financial 

institution that has undergone a comprehensive “stress test” will have access to a 

Treasury provided “capital buffer” to help absorb losses and serve as a bridge to 

receiving increased private capital. While most banks have strong capital positions, 

the Financial Stability Trust will provide a capital buffer that will: Operate as a form 

of “contingent equity” to ensure firms the capital strength to preserve or increase 
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lending in a worse than expected economic downturn. Firms will receive a preferred 

security investment from Treasury in convertible securities that they can convert into 

common equity if needed to preserve lending in a worse-than-expected economic 

environment. This convertible preferred security will carry a dividend to be specified 

later and a conversion price set at a modest discount from the prevailing level of the 

institution’s stock price as of February 9, 2009. Banking institutions with 

consolidated assets below $100 billion will also be eligible to obtain capital from the 

CAP after a supervisory review.

c. Financial Stability Trust: Any capital investments made by Treasury under the CAP 

will be placed in a separate entity – the Financial Stability Trust – set up to manage 

the government’s investments in US financial institutions. 

2. Public-Private Investment Fund: One aspect of a full arsenal approach is the need to provide 

greater means for financial institutions to cleanse their balance sheets of what are often referred to as 

“legacy” assets. Many proposals designed to achieve this are complicated both by their sole reliance 

on public purchasing and the difficulties in pricing assets. Working together in partnership with the 

FDIC and the Federal Reserve, the Treasury Department will initiate a Public-Private Investment 

Fund that takes a new approach.

• Public-Private Capital: This new program will be designed with a public-private financing 

component, which could involve putting public or private capital side-by-side and using 

public financing to leverage private capital on an initial scale of up to $500 billion, with the 

potential to expand up to $1 trillion.

• Private Sector Pricing of Assets: Because the new program is designed to bring private 

sector equity contributions to make large-scale asset purchases, it not only minimizes public 

capital and maximizes private capital: it allows private sector buyers to determine the price 

for current troubled and previously illiquid assets 

3. Consumer & Business Lending Initiative – Up to $1 Trillion: Addressing our credit crisis on all 

fronts means going beyond simply dealing with banks. While the intricacies of secondary markets 

and securitization – the bundling together and selling of loans – may be complex, they account for 

almost half of the credit going to Main Street as well as Wall Street. When banks making loans for 

small businesses, commercial real estate or autos are able to bundle and sell those loans into a vibrant 

and liquid secondary market, it instantly recycles money back to financial institutions to make 

additional loans to other worthy borrowers. When those markets freeze up, the impact on lending for 

consumers and businesses – small and large – can be devastating. Unable to sell loans into secondary 

markets, lenders freeze up, leading those seeking credit like car loans to face exorbitant rates. 

Between 2006 and 2008, there was a net $1.2 trillion decline in securitized lending (outside of the 

GSEs) in these markets. That is why a core component of the Financial Stability Plan is:

• A Bold Expansion Up to $1 Trillion: This joint initiative with the Federal Reserve builds off, 

broadens and expands the resources of the previously announced but not yet implemented 

Term Asset-Backed Securities Loan Facility (TALF). The Consumer & Business Lending 
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Initiative will support the purchase of loans by providing the financing to private investors to 

help unfreeze and lower interest rates for auto, small business, credit card and other consumer 

and business credit. Previously, Treasury was to use $20 billion to leverage $200 billion of 

lending from the Federal Reserve. The Financial Stability Plan will dramatically increase the 

size by using $100 billion to leverage up to $1 trillion and kick start lending by focusing on 

new loans. 

• Protecting Taxpayer Resources by Limiting Purchases to Newly Packaged AAA Loans:

Because these are the highest quality portion of any security — the first ones to be paid — we 

will be able to best protect against taxpayer losses and efficiently leverage taxpayer money to 

support a large flow of credit to these sectors. 

• Expand Reach – Including Commercial Real Estate: The Consumer & Business Lending 

Initiative will expand the initial reach of the Term Asset-Backed Securities Loan Facility to 

now include commercial mortgage-backed securities (CMBS). In addition, the Treasury will 

continue to consult with the Federal Reserve regarding possible further expansion of the 

TALF program to include other asset classes, such as non-Agency residential mortgagebacked securities (RMBS) and assets collateralized by corporate debt.

4. New Era of Transparency, Accountability, Monitoring and Conditions: A major and legitimate 

source of public frustration and even anger with the initial deployment of the first $350 billion of 

EESA funds was a lack of accountability or transparency as to whether assistance was being provided 

solely for the public interest and a stronger economy, rather than the private gain of shareholders, 

bondholders or executives. Going forward, the Financial Stability Plan will call for greater 

transparency, accountability and conditionality with tougher standards for firms receiving exceptional 

assistance. These will be the new standards going forward and are not retroactive. These stronger 

monitoring conditions were informed by recommendations made by formal oversight groups – the 

Congressional Oversight Panel, the Special Inspector General, and the Government Accountability 

Office — as well as Congressional committees charged with oversight of the banking system. 

a. Requiring Firms to Show How Assistance from Financial Stability Plan Will Expand 

Lending: The core of the new monitoring requirement is to require recipients of 

exceptional assistance or capital buffer assistance to show how every dollar of capital 

they receive is enabling them to preserve or generate new lending compared to what 

would have been possible without government capital assistance. 

• Intended Use of Government Funds: All recipients of assistance must submit a plan 

for how they intend to use that capital to preserve and strengthen their lending 

capacity. This plan will be submitted during the application process, and the 

Treasury Department will make these reports public upon completion of the capital 

investment in the firm. 

• The Impact on Lending Requirement: Firms must detail in monthly reports submitted 

to the Treasury Department their lending broken out by category, showing how many 

new loans they provided to businesses and consumers and how many asset-backed 

and mortgage-backed securities they purchased, accompanied by a description of the 
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lending environment in the communities and markets they serve. This report will 

also include a comparison to their most rigorous estimate of what their lending would 

have been in the absence of government support. For public companies, similar 

reports will be filed on an 8K simultaneous with the filing of their 10-Q or 10-K 

reports. Additionally, the Treasury Department will – in collaboration with banking 

agencies – publish and regularly update key metrics showing the impact of the 

Financial Stability Plan on credit markets. These reports will be put on the Treasury 

FinancialStability.gov website so that they can be subject to scrutiny by outside and 

independent experts. 

• Taxpayers’ Right to Know: All information disclosed or reported to Treasury by 

recipients of capital assistance will be posted on FinancialStability.gov because 

taxpayers have the right to know whether these programs are succeeding in creating 

and preserving lending and financial stability. 

b. Committing Recipients to Mortgage Foreclosure Mitigation: All recipients of capital 

investments under the new initiatives announced today will be required to commit to 

participate in mortgage foreclosure mitigation programs consistent with guidelines 

Treasury will release on industry standard best practices. 

c. Restricting Dividends, Stock Repurchases and Acquisitions: Limiting common 

dividends, stock repurchases and acquisitions provides assurance to taxpayers that all of 

the capital invested by the government under the Financial Stability Trust will go to 

improving banks’ capital bases and promoting lending. All banks that receive new 

capital assistance will be: 

• Restricted from Paying Quarterly Common Dividend Payments in Excess Of $0.01 

Until the Government Investment Is Repaid: Banks that receive exceptional 

assistance can only pay $0.01 quarterly. That presumption will be the same for firms 

that receive generally available capital unless the Treasury Department and their 

primary regulator approve more based on their assessment that it is consistent with 

reaching their capital planning objectives. 

• Restricted from Repurchasing Shares: All banks that receive funding from the new 

Capital Assistance Program are restricted from repurchasing any privately-held 

shares, subject to approval by the Treasury Department and their primary regulator, 

until the government’s investment is repaid.

• Restricted from Pursuing Acquisitions: All banks that receive capital assistance are 

restricted from pursuing cash acquisitions of healthy firms until the government 

investment is repaid. Exceptions will be made for explicit supervisor-approved 

restructuring plans. 

d. Limiting Executive Compensation: Firms will be required to comply with the senior 

executive compensation restrictions announced February 4th, including those pertaining to 

a $500,000 in total annual compensation cap plus restricted stock payable when the 
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government is getting paid back, “say on pay” shareholder votes, and new disclosure and 

accountability requirements applicable to luxury purchases. 

e. Prohibiting Political Interference in Investment Decisions: The Treasury Department 

has announced measures to ensure that lobbyists do not influence applications for, or 

disbursements of, Financial Stability Plan funds, and will certify that each investment 

decision is based only on investment criteria and the facts of the case. 

f. Posting Contracts and Investment Information on the Web: The Treasury Department 

will post all contracts under the Financial Stability Plan on FinancialStability.gov within 

five to 10 business days of their completion. Whenever Treasury makes a capital 

investment under these new initiatives, it will make public the value of the investment, the 

quantity and strike price of warrants received, the schedule of required payments to the 

government and when government is being paid back. The terms of pricing of these 

investments will be compared to terms and pricing of recent market transactions during the 

period the investment was made, if available.

5. Housing Support and Foreclosure Prevention: There is bipartisan agreement today that stemming 

foreclosures and restructuring troubled mortgages will help slow the downward spiral harming 

financial institutions and the real American economy. Many Congressional leaders, housing 

advocates, and ordinary citizens have been disappointed that the Troubled Asset Relief Program was 

not aimed at ending the foreclosure crisis. We will soon be announcing a comprehensive plan that 

builds on the work of Congressional leaders and the FDIC. Among other things, our plan will: 

• Drive Down Overall Mortgage Rates: The Treasury Department and the Federal Reserve 

remain committed to expand as necessary the current effort by the Federal Reserve to help 

drive down mortgage rates – freeing up funds for working families – through continuation of 

its efforts to spend as much as $600 billion for purchasing of GSE mortgage-backed 

securities and GSE debt. 

• Commit $50 Billion to Prevent Avoidable Foreclosures of owner-occupied middle class 

homes by helping to reduce monthly payments in line with prudent underwriting and longterm loan performance. 

• Help Bring Order and Consistency to the various efforts to address the foreclosure crisis by 

establishing loan modification guidelines and standards for government and private programs. 

• Require All Financial Stability Plan Recipients to Participate in Foreclosure Mitigation 

Plans consistent with Treasury guidance. 

• Build Flexibility into Hope for Homeowners and the FHA to enable loan modifications for 

a greater number of distressed borrowers. 

6. Small Business and Community Lending Initiative: Few aspects of our current financial crisis 

have created more justifiable resentment than the specter of hard-working entrepreneurs and small 

business owners seeing their companies hurt and even bankrupt because of a squeeze on credit they 

played no role in creating. Currently, the increased capital constraints of banks, the inability to sell 
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SBA loans on the secondary market and a weakening economy have combined to dramatically reduce 

SBA lending at the very time our economy cannot afford to deny credit to any entrepreneur with the 

potential to create jobs and expand markets. Further adding to this frustration is the sense that 

community banks – which still engage in relationship lending that serves their local communities -- 

have been overlooked not just during this crisis, but over the last several years. 

Over the next several days, President Obama, the Treasury Department and the SBA will announce 

the launch of a Small Business and Community Bank Lending Initiative: This effort will seek to arrest 

the precipitous decline in SBA lending – down 57 percent last quarter from the same quarter a year 

earlier for the flagship 7(a) loans through: 

• Use of the Consumer &Business Lending Initiative to finance the purchase of AAA-rated 

SBA loans to unfreeze secondary markets for small business loans. 

• Increasing the Guarantee for SBA Loans to 90%: The Administration is seeking to pass in 

the American Recovery and Reinvestment Act an increase in the guarantee of SBA loans 

from as low as 75% to as high as 90%. 

• Reducing Fees for SBA 7(a) and 504 Lending and Provide Funds for Both Oversight and 

Speedier and Less Burdensome Processing of Loan Applications.