Created in 2008, CPP was the primary initiative under TARP to help stabilize the financial markets and banking system by providing capital to qualifying regulated financial institutions through the purchase of senior preferred shares and subordinated debt. On October 14, 2008, Treasury allocated $250 billion of the original $700 billion in overall TARP funds for CPP. The allocation was subsequently reduced in March 2009 to reflect lower estimated funding needs, as evidenced by actual participation rates. The program was closed to new investments on December 31, 2009. Under CPP, qualified financial institutions were eligible to receive an investment of between 1 and 3 percent of their risk-weighted assets, up to a maximum of $25 billion. generally received senior preferred shares that would pay dividends at a rate of 5 percent annually for the first 5 years and 9 percent annually thereafter. EESA required that Treasury also receive warrants to purchase shares of common or preferred stock or a senior debt instrument to further protect taxpayers and help ensure returns on the investments. Institutions are allowed to repay CPP investments with the approval of their primary federal bank regulator and afterward to repurchase warrants at fair market value. Risk-weighted assets are all assets and off-balance-sheet items held by an institution, weighted for risk according to the federal banking agencies’ regulatory capital standards. In May 2009, Treasury increased the maximum amount of CPP funding that small financial institutions (qualifying financial institutions with total assets of less than $500 million) could receive from 3 to 5 percent of risk-weighted assets. Federal Reserve System, as well as bank and financial holding companies; Federal Deposit Insurance Corporation (FDIC), which provided primary federal oversight of any state-chartered banks that were not members of the Federal Reserve System; Office of the Comptroller of the Currency (OCC), which was responsible for chartering, regulating, and supervising commercial banks with national charters; and Office of Thrift Supervision (OTS), which chartered federal savings associations (thrifts) and regulated and supervised federal and state thrifts and savings and loan holding companies. OTS has since been eliminated. The primary federal regulator is generally the regulator overseeing the lead bank. Primary federal regulators of bank holding companies also consult with the Federal Reserve. referred to an interagency CPP Council composed of representatives from the four banking regulators, with Treasury officials as observers. The CPP Council evaluated and voted on the applicants, forwarding to Treasury applications that received “approval” recommendations from a majority of the council members. Treasury provided guidance to regulators and the CPP Council to use in assessing applicants that permitted consideration of factors such as signed merger agreements or confirmed investments of private capital, among other things, to offset low examination ratings or other attributes of weaknesses. Finally, institutions that the banking regulators determined to be the weakest and thus ineligible for a CPP investment, such as those with the lowest examination ratings, received a presumptive denial recommendation. The banking regulators or the CPP Council sent recommendations for approval to Treasury’s Investment Committee, which was composed of three to five senior Treasury officials, including OFS’s Chief Investment Officer (who served as the committee chair) and the assistant secretaries for financial markets, economic policy, financial institutions, and financial stability at Treasury. The Investment Committee could also request additional analysis or information in order to clear up any concerns before deciding on an applicant’s eligibility. After completing its review, the Investment Committee made recommendations to the Assistant Secretary for Financial Stability for final approval. Once the Investment Committee recommended preliminary approval, Treasury and the approved institution initiated the closing process to complete the investment and disburse the CPP funds. Nine major financial institutions were initially included in CPP.institutions did not follow the application process that was ultimately developed but were included because Treasury and the federal banking regulators considered them essential to the operation of the financial system. At the time, these nine institutions held about 55 percent of U.S. banking assets and provided a variety of services, including retail, wholesale, and investment banking and custodial and processing services. According to Treasury officials, the nine financial institutions agreed to participate in CPP in part to signal the program’s importance to the stability of the financial system. Initially, Treasury approved $125 billion in capital purchases for these institutions and completed the These transactions with eight of them on October 28, 2008, for a total of $115 billion. The remaining $10 billion was disbursed after the merger of Bank of America Corporation and Merrill Lynch & Co., Inc. was completed in January 2009. Repayments and income from dividends, interest, and warrants from CPP investments have exceeded the amounts originally disbursed, but concerns remain about the financial strength of the remaining institutions and their ability to repay and exit the program. As we have reported, Treasury disbursed $204.9 billion to 707 financial institutions nationwide from October 2008 through December 2009. As of January 31, 2012, Treasury had received $211.5 billion in repayments and income from its CPP investments, exceeding the amount originally disbursed by $6.6 billion (see fig. 2). The repayments and income amount included $185.5 billion in repayments of original CPP investments as well as $11.4 billion in dividends, interest, and fees; $7.7 billion in warrants sold; and $6.9 billion in gains from the sale of Citigroup common stock. After accounting for write-offs and realized losses totaling $2.7 billion, CPP had $16.7 billion in outstanding investments as of January 31, 2012. Although this $16.7 billion is still potentially at risk, Treasury estimated a lifetime gain of $13.5 billion for CPP as of November 30, 2011. As of January 31, 2012, 52 percent (366) of the original 707 institutions remained in CPP. These institutions accounted for $16.7 billion in outstanding investments, or 8 percent of the original amount disbursed. About two-thirds of the outstanding investments were concentrated in a relatively small number of institutions (see fig. 3). Specifically, 25 remaining CPP investments accounted for $11.2 billion, or 67 percent of outstanding investments. In contrast, the remaining $5.5 billion (33 percent) was spread among 341 institutions. On a geographical basis, outstanding CPP investments were relatively widely disbursed throughout the United States as of January 31, 2012. All but 3 states and the District of Columbia had at least 1 institution with CPP investments outstanding, and 25 states had at least 5 such institutions (see fig. 4). California had the highest number of remaining CPP institutions with 33, followed by Illinois with 24. These states also had the highest number of original CPP recipients (72 and 45, respectively). In terms of total CPP investments outstanding, however, Alabama had the largest amount ($3.6 billion), followed by Utah ($1.4 billion), Georgia ($1.4 billion), and Puerto Rico ($1.3 billion). Nearly half (341) of the 707 institutions that originally participated in CPP had exited the program as of January 31, 2012. Of the 341 institutions that exited CPP, 43 percent, or 146 institutions, exited by fully repaying their investments. Another 48 percent, or 165 institutions, exited CPP by exchanging their investments under other federal programs: 28 through the Community Development Capital Initiative (CDCI) and 137 through the SBLF program (see fig. 5).CPP recipients that exited the program, 15 went into bankruptcy or receivership, 12 had investments sold by Treasury, and 3 merged with another institution. CPP dividend and interest payments are due on February 15, May 15, August 15, and November 15 of each year, or the first business day subsequent to those dates. The reporting period ends on the last day of the calendar month in which the dividend or interest payment is due. number of institutions missing dividend or interest payments due on their CPP investments increased steadily from 8 in February 2009 to 158 in November 2011, or about 42 percent of institutions still in the program (see fig. 6). This increase has occurred while program participation has declined, and the proportion of those missing scheduled payments has risen accordingly. The number of institutions missing payments has stabilized since February 2011, but most of these institutions continued to miss them. In particular, 119 of the 158 institutions that missed payments in November 2011 had also missed payments in each of the previous three quarters. Moreover, only 7 of the 158 institutions had never missed a previous payment. On July 19, 2011, Treasury announced that it had, for the first time, exercised its right to elect members to the boards of directors of two of the remaining CPP institutions. In considering whether to nominate directors, Treasury said that it proceeds in two steps. First, after an institution misses five dividend or interest payments, Treasury sends OFS staff members to observe board meetings. Second, once an institution has missed six dividend payments, Treasury decides whether to nominate a board member based on a variety of considerations, including what it learns from the board meetings, the institution’s financial condition, the function of its board of directors, and the size of its investment.January 31, 2012, Treasury had elected 12 board members to 7 CPP institutions. At the same time that the number of institutions missing dividend payments has risen, the number of CPP institutions on FDIC’s problem bank list has generally increased. FDIC compiles a list of banks with demonstrated financial, operational, or managerial weaknesses that threaten their continued financial viability and publicly reports the number of such institutions on a quarterly basis. While some CPP funds were disbursed to bank holding companies, FDIC’s problem bank list does not include them. FDIC accounted for bank holding companies participating in CPP when their subsidiary depositories were designated as problem banks.