I 

111TH CONGRESS 

1ST SESSION H. R. 710 

To secure additional Tier I capital for the United States banking system 

from parties other than the Federal Government by providing authority 

to the Secretary of the Treasury to guaranty certain new preferred 

stock investments made by public pensions acting in a collective fashion, 

and for other purposes. 

IN THE HOUSE OF REPRESENTATIVES 

JANUARY 27, 2009 

Mr. ACKERMAN introduced the following bill; which was referred to the Committee on Financial Services, and in addition to the Committee on Ways 

and Means, for a period to be subsequently determined by the Speaker, 

in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned 

A BILL 

To secure additional Tier I capital for the United States 

banking system from parties other than the Federal Government by providing authority to the Secretary of the 

Treasury to guaranty certain new preferred stock investments made by public pensions acting in a collective 

fashion, and for other purposes. 

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 


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1 SECTION 1. SHORT TITLE. 

2 This Act may be cited as the ‘‘Public Retiree’s Invest3 ment Act of 2009’’. 

4 SEC. 2. FINDINGS. 

5 Congress finds the following: 

6 (1) The United States banking system’s ability 

7 to extend credit on a basis consistent with healthy 

8 economic activity is restricted by a need or desire to 

9 conserve capital in the face of anticipated losses. 

10 (2) A shortage of banking capital may continue 

11 to exist because private investors are generally un12 willing to provide such capital given their inability to 

13 accurately assess the risk exposure of any individual 

14 institution while the Federal Government’s ability to 

15 function as a capital provider may be constrained by 

16 concerns regarding Federal control of the banking 

17 system as well its desire to use Federal funds in nu18 merous areas besides capitalization of the banking 

19 system. 

20 (3) State and local public pension funds are 

21 long term investors whose constituents benefit from 

22 a well-capitalized banking system with the ability to 

23 extend credit broadly at all levels of the economy. 

24 (4) Certain State and local pension plans have 

25 broad investment powers under State law which 

26 would include the ability to form cooperative busiVerDate Nov 24 2008 04:05 Jan 29, 2009 Jkt 079200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\H710.IH H710

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1 ness endeavors solely owned by them or in concert 

2 with public pension plans in other States. 

3 (5) Certain of these public pension plans have 

4 indicated their willingness and ability to rapidly 

5 form and fund a vehicle to be mutually owned by 

6 them for the sole purpose of investing in preferred 

7 stocks of United States banking institutions subject 

8 to certain guaranties provided by the Secretary of 

9 the Treasury or other appropriate Federal Govern10 ment officer or agency. 

11 SEC. 3. DEFINITIONS. 

12 For purposes of this Act, the following definitions 

13 shall apply: 

14 (1) ELIGIBLE INVESTMENTS.—The term ‘‘eligi15 ble investment’’ means any preferred stock invest16 ment which meets the requirements of this Act by 

17 any public pension bank capital infusion fund. 

18 (2) PUBLIC PENSION PLANS.—The term ‘‘pub19 lic pension plan’’ means any State and local pension 

20 plan that has broad investment powers and author21 ity under State law, including the authority to estab22 lish, administer, and participate in cooperative busi23 ness endeavors solely owned by the plan or other 

24 public pension plans. 


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1 (3) PUBLIC PENSION BANK CAPITAL INFUSION

2 FUND.—The term ‘‘public pension bank capital infu3 sion fund’’ means any investment vehicle mutually 

4 owned by public pension plans for the sole purpose 

5 of investing in preferred stocks of United States 

6 banking institutions, subject to certain guarantees 

7 provided by the Secretary of the Treasury or other 

8 appropriate Federal Government officer or agency, 

9 that meets the requirements of this Act for such 

10 capital infusion funds. 

11 (4) QUALIFIED EQUITY OFFERING.—The term 

12 ‘‘qualified equity offering’’ means the sale for cash, 

13 by a financial institution after the date of an invest14 ment by a public pension bank capital infusion fund 

15 in any eligible investment issued by such institution, 

16 of perpetual preferred stock or common stock which 

17 qualifies as Tier 1 capital of such financial institu18 tion. 

19 (5) REGUARANTEE.—The term ‘‘reguarantee’’ 

20 means a guarantee issued by a guarantor of the pay21 ment of, or the fulfillment of any other obligation 

22 under, a guarantee issued by another guarantor. 

23 (6) SECRETARY.—The term ‘‘Secretary’’ means 

24 the Secretary of the Treasury. 


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1 SEC. 4. PUBLIC PENSION PLAN INVESTMENTS IN CERTAIN 

2 BANK PREFERRED STOCK INSTRUMENTS. 

3 (a) GUARANTEE AND REGUARANTEE AUTHORITY.— 

4 The Secretary may guarantee eligible investments or re5 guarantee a guarantee of eligible investments. 

6 (b) REQUIREMENTS AND PROCEDURES FOR GUARAN7 TEES.— 

8 (1) TERM AND OTHER CONDITIONS OF GUARAN9 TEES.—Any guarantee or reguarantee provided by 

10 the Secretary under subsection (a) with respect to 

11 an eligible investment shall— 

12 (A) be an unconditional guarantee for the 

13 life of the eligible investment; and 

14 (B) shall cover the timely payment of divi15 dends on, and the ultimate return of principal 

16 of, such eligible investment, in accordance with 

17 the terms of the eligible investment. 

18 (2) PROCEDURES.—The process by which the 

19 Secretary shall be notified of a need to perform 

20 under a guarantee or reguarantee issue under sub21 section (a) and the manner in which the Secretary 

22 shall perform the duties of guarantor or reguarantor 

23 shall be mutually agreed to by the Secretary, the 

24 other guarantor, in the case of a reguarantee from 

25 the Secretary, and the public pension bank capital 

26 infusion fund. 


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1 (c) TERMS OF ELIGIBILITY FOR PUBLIC PENSION

2 PLANS.— 

3 (1) AUTHORIZED UNDER STATE LAW.—The 

4 Secretary may not guarantee or reguarantee eligible 

5 investments of a public pension bank capital infusion 

6 fund under subsection (a) unless each public pension 

7 plan which has a mutual ownership interest in such 

8 capital infusion fund is authorized under State law 

9 to establish, or participate in the formation of, a 

10 wholly owned mutual fund or a limited liability cor11 poration, in the case of joint ownership with other 

12 public pension plans. 

13 (2) CHOICE OF LAW ISSUE.—The powers of any 

14 public pension plan for purposes of this subsection 

15 shall— 

16 (A) in all instances be determined by the 

17 law of the domicile State of such public pension 

18 plans; and 

19 (B) in the case of a joint endeavor among 

20 public pension plans from different States, by a 

21 choice of law agreement (among the partici22 pating public pension plans) to which each 

23 State represented by a plan has granted full 

24 faith and credit. 


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1 (d) TERMS OF ELIGIBILITY FOR ELIGIBLE INVEST2 MENTS BY A PUBLIC PENSION BANK CAPITAL INFUSION

3 FUND.— 

4 (1) MAXIMUM AMOUNT PER FUND.—The eligi5 ble investments of a public pension bank capital in6 fusion fund shall be eligible for a guarantee or re7 guarantee under this section only if the aggregate 

8 amount of such investments by the fund do not ex9 ceed $50,000,000,000. 

10 (2) INSTITUTION ELIGIBLE FOR INVEST11 MENTS.—Only an investment in preferred stock that 

12 meets the requirements of subsection (e) and has 

13 been issued by a financial institution which meets 

14 the definition of a qualifying financial institution 

15 under the TARP Capital Purchase Program estab16 lished under the authority of the Emergency Eco17 nomic Stabilization Act of 2008 may be treated as 

18 an eligible investment for purposes of this Act. 

19 (e) PREFERRED STOCK REQUIREMENTS.—Preferred 

20 stock meets the requirements of this subsection if the fol21 lowing terms and conditions are met by such stock: 

22 (1) SECURITY.—The stock bears senior pre23 ferred status with a liquidation preference of $1,000 

24 per share or higher as provided in the TARP Capital 

25 Purchase Program. 


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1 (2) RANKING.—The stock is senior to common 

2 stock and pari passu with existing preferred shares 

3 other than preferred shares which by their terms 

4 rank junior to any existing preferred shares. 

5 (3) REGULATORY CAPITAL STATUS.—The pre6 ferred stock meets the requirement for treatment as 

7 Tier I capital for the financial institution which 

8 issued it. 

9 (4) TERM.—The term of the stock is perpetual. 

10 (5) DIVIDENDS.— 

11 (A) IN GENERAL.—The stock pays cumu12 lative dividends at— 

13 (i) an initial rate of 8.5 percent per 

14 year; and 

15 (ii) after the end of the 1-year period 

16 beginning on the date of the enactment of 

17 this Act, at the prevailing reset rate deter18 mined in accordance with subparagraph 

19 (B). 

20 (B) RESET RATE.—The term ‘‘reset rate’’ 

21 means the rate determined at the end of the 1- 

22 year period beginning on the date of the enact23 ment of this Act and each 1-year period there24 after by adding together— 


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1 (i) the yield prevailing as of the close 

2 of business of the date of the determina3 tion on 10-year United States treasury 

4 notes; and 

5 (ii) the difference between 8.5 percent 

6 and the yield prevailing as of the close of 

7 business on the date of the enactment of 

8 this Act on 10-year United States treasury 

9 notes. 

10 (6) REDEMPTION.— 

11 (A) TIMING.—The redemption of the stock 

12 is subject to the following conditions: 

13 (i) The stock may not be redeemed for 

14 a period of 3 years from the date of the 

15 initial investment by the public pension 

16 bank capital infusion fund, except with the 

17 proceeds from a qualified equity offering 

18 which results in aggregate gross proceeds 

19 to the financial institution which issued the 

20 stock of not less than 25 percent of the 

21 issue price of the stock. 

22 (ii) After the third anniversary of the 

23 date of the investment, the stock may be 

24 redeemed, in whole or in part, at any time 


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1 and from time to time, at the option of the 

2 financial institution. 

3 (B) AMOUNT.—All redemptions of the 

4 stock are at 100 percent of the issue price, plus 

5 any accrued and unpaid dividends and shall be 

6 subject to the approval of the primary Federal 

7 financial regulator of the issuing financial insti8 tution. 

9 (7) RESTRICTIONS ON DIVIDENDS.—For as 

10 long as the preferred stock is outstanding, no divi11 dends may be declared or paid on junior preferred 

12 shares, preferred shares ranking pari passu with the 

13 preferred stock, or common shares (other than in 

14 the case of pari passu preferred shares’ dividends on 

15 a pro rata basis with the preferred stock) nor may 

16 the financial institution which issued the preferred 

17 stock repurchase or redeem any junior preferred 

18 shares, preferred shares ranking pari passu with the 

19 preferred stock, or common shares until such time 

20 as the preferred stock has been redeemed in whole. 

21 (8) VOTING RIGHTS.—The preferred stock is 

22 nonvoting, other than class voting rights on— 

23 (A) any authorization or issuance of shares 

24 ranking senior to the preferred stock; 


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1 (B) any amendment to the rights of the 

2 preferred stock; or 

3 (C) any merger, exchange or similar trans4 action which would adversely affect the rights 

5 of the preferred stock. 

6 (9) APPOINT OF DIRECTORS.—The stock in7 strument provides that if dividends on the preferred 

8 stock are not paid in full for more than 4 consecu9 tive dividend periods, the Secretary may elect 2 di10 rectors to serve on the board of directors of the 

11 issuing financial institution until such time as full 

12 dividends have been paid for 4 consecutive dividend 

13 periods. 

14 (10) TIMING OF GUARANTY PAYMENTS.—The 

15 payment of guaranty payments under this Act shall 

16 be pursuant to a policy mutually agreed to by the 

17 Secretary, the other guarantor, in the case of a re18 guarantee from the Secretary, and the public pen19 sion bank capital infusion fund which policy shall be 

20 consistent with the intent of the guarantee, as speci21 fied in section 4(b). 

22 (f) EFFECTIVE PERIOD OF GUARANTEE AUTHOR23 ITY.—Notwithstanding any other provision of this section, 

24 any guarantee or reguarantee under this subsection may 

25 only be provided on an eligible investment whose initial 


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1 issuance is made before the end of the 3-year period begin2 ning on the date of the enactment of this Act . 

3 (g) TREATMENT UNDER OTHER LAW.—A public 

4 pension bank capital infusion fund that is a mutual fund 

5 vehicle or limited liability corporation owned by one or 

6 more public pension plans and managed under contract 

7 by an appropriate service vender (as approved by the Sec8 retary) who reports to the fund directly or through its 

9 chief investment officer shall be deemed to be a political 

10 subdivision of a State as that term is defined in section 

11 414(d) of the Internal Revenue Code of 1986 and shall 

12 be exempt from taxation pursuant to section 115 of such 

13 Code. 

14 (h) REPORTS.— 

15 (1) IN GENERAL.—In the case of any guarantee 

16 or reguarantee issued by the Secretary, under sub17 section (a), with respect to eligible investments, the 

18 guarantor of such eligible investments shall submit 

19 a report to the Congress (and to the Secretary, in 

20 any case in which the Secretary is the reguarantor) 

21 on the status of the guarantee or reguarantee. 

22 (2) CONTENTS.—Each report submitted under 

23 paragraph (1) shall include, at a minimum— 


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1 (A) the name of any institution issuing eli2 gible investments for which a guarantee is in ef3 fect; 

4 (B) the face amount of each eligible invest5 ment covered by the guarantee; 

6 (C) the amount of dividends paid, declared 

7 and due under the terms of the eligible invest8 ment; and 

9 (D) the amount of any payments made by 

10 the guarantor as a result of the enactment of 

11 this Act. 

Æ 


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