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About the Financial Stability Plan

Updated: August 28, 2009

Today, our nation faces a severe financial crisis. 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. Our Financial Stability Plan will help ensure 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 a significant portion of our lending for everything from small business loans to auto loans.

“We have put in place a series of financial initiatives, alongside the Recovery and Reinvestment Program, to help lay the financial foundation for economic recovery. We launched a broad program to stabilize the housing market by encouraging lower mortgage rates and making it easier for millions to refinance and avoid foreclosure. We established a new capital program to provide banks with a safeguard against a deeper recession. By providing confidence that banks will have a sufficient level of capital even if the outlook is worse than expected, more credit will be available to the economy at lower interest rates today -- making it less likely that the more negative economy they fear will take place.”

– Secretary Geithner, Wall Street Journal Op-Ed, 03/23/09

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.

The Financial Stability Plan is a full force, comprehensive approach that seeks to stabilize the financial system and get lending flowing again:

Capital Assistance Program – Ensure Banks Have Adequate Capital

Treasury has announced details of its Capital Assistance Program to restore confidence in our financial institutions and ensure that they have the capital to continue to lend even in a more adverse environment. The supervisors are conducting stress tests of the nation’s major financial institutions to determine whether they need additional capital to continue lending and absorb the potential losses that could result from a more severe decline in the economy than projected. Eligible financial institutions can either raise the necessary capital in the private markets, or issue convertible preferred stock to the government through CAP.

Consumer and Business Lending Initiative – Unfreeze Secondary Credit Markets.

Under the CBLI, the Treasury and the Federal Reserve are working together to provide an initial $200 billion in financing to private investors to help unfreeze and lower interest rates for loans for students, small businesses, and others. This program has the potential to unlock up to $1 trillion of new lending and unfreeze currently frozen credit markets.

Making Home Affordable Program – Help Families Stay in Their Homes

The Making Home Affordable Program will help up to 5 million responsible homeowners refinance to keep their mortgages affordable, and create a $75 billion loan modification program to help up to 4 million families avoid foreclosure. The plan establishes guidelines to help bring order and consistency to the home loan process and keep more American families in their homes.

Public-Private Investment Program – Addressing the Challenge of Legacy Assets

To address the challenge of legacy assets, Treasury – in conjunction with the Federal Deposit Insurance Corporation and the Federal reserve – created the Public-Private Investment Program as part of its efforts to repair balance sheets throughout our financial system and ensure that credit is available to the households and businesses, large and small, that will help drive us toward recovery.

Key to the success of the Administration’s strategy is a new level of transparency and accountability that is designed to protect American taxpayers by ensuring proper use of public funds through conditions on lending and executive compensation, and by enhanced reporting requirements.

The broad goals of the Administration strategy are to: