Financial Stability Plan
The Financial Stability Plan: Deploying our Full Arsenal to Attack the Credit Crisis on All Fronts.
America is back from the brink of the worst financial crisis since the Great Depression. It was helped back by the actions of the U.S. government and the Federal Reserve, and especially the forceful and sustained policies of the Obama Administration. Our plans to spur economic recovery and rescue the financial system were the first phase of a comprehensive cure for the crippling conditions that confronted President Obama as he assumed office. While there is more to be done to assure financial stability, we are moving from the rescue phase of our efforts to the next phase of rehabilitation and rebuilding.
In this new phase, the Administration is ending some of the emergency measures that were put in place at the height of the crisis to avert financial collapse. Thanks in part to the transparency and direction provided by the Administration’s “stress tests” for the largest U.S. financial institutions, banks that received government assistance over the past year have been able to raise substantial funds in private markets. As a result, they have repaid tens of billions of dollars of taxpayer money.
Although we are rolling back emergency measures that are no longer needed, we remain steadfast in our commitment to preserve the stability of the financial system. Some government programs will stay in place to serve as a bulwark against unforeseen events and to provide confidence in our financial markets. In addition, programs that are helping to prevent avoidable foreclosures for millions of responsible American homeowners and to restore the flow of credit to small businesses and consumers will continue.
We are also working with Congress to enact reforms that will provide consumers with the protections they deserve and make the financial system safer, more stable and better able to support balanced sustained growth. And we are working with our economic partners internationally to help ensure that similarly positive reforms are enacted around the world.
“Our goal must be a stronger system that can provide the credit necessary for recovery, and that also ensures that we never find ourselves in this type of financial crisis again. We are moving quickly to achieve those goals, and we will keep at it until we have done so.” |
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The four key elements of the rehabilitation and rebuilding phase of our financial stability plan are:
- Ending some emergency measures.
Early this year, with the financial system still extremely fragile, the Administration included a $250 billion “placeholder” in the President’s budget in case additional funds were needed to achieve financial stability. But with the “stress test” of the nation’s major financial institutions successfully completed and major firms able again to raise private capital on their own, we removed it.
At the height of the crisis, Treasury guaranteed over $3 trillion in assets to prevent a run on money market mutual funds. The program achieved its purpose, and we terminated it in September. Not only did it not cost the taxpayers anything, it earned them $1.2 billion in fees.
- Reducing the financial system’s reliance on federal support.
In October of last year, the Federal Deposit Insurance Corporation began guaranteeing newly-issued bank debt in exchange for nearly $10 billion in fees to date.. Monthly issuance of debt guaranteed through this program peaked last December at $113 billion, but had fallen to $12 billion by September. The last day to issue debt under the program is October 31, 2009.
Use of Federal Reserve programs designed to ensure financial institutions had the cash to continue transacting business during the crisis has fallen substantially. Credit flowing to banks through the Fed’s principal programs for this purpose has dropped from a peak of $560 billion to just over $200 billion. Nonbank financial firms have borrowed nothing for months through Fed’s chief programs for helping these institutions.
- Repaying taxpayer investments.
The previous Administration provided $239 billion in support for banks. Since January, Treasury has provided $11 billion in almost 400 financial institutions, the vast majority of which are small and community banks. Meanwhile, banks that received assistance have repaid more than $70 billion. In addition, they have paid over $9 billion in dividends, interest and other income. For the 25 institutions in which Treasury’s investments have been fully repaid, Treasury has earned an annualized average return of roughly 17 percent. We expect to be repaid an additional $50 billion over the next 12-18 months.
- Helping responsible homeowners and getting credit flowing to small businesses and consumers.
Although conditions have improved, the housing market remains under pressure. Our Making Home Affordable program continues to provide needed assistance to responsible homeowners. In July, we set a goal of modifying 500,000 at-risk mortgages by November 1st, and we hit our target three weeks early. We are meeting with mortgage servicers about how to improve the program and extend its reach.
We continue to explore ways to get credit flowing to small businesses and consumers. We recently launched several initiatives with the Small Business Administration to increase loans from small and community banks to small businesses. In addition, we are continuing a joint Treasury-Federal Reserve program that improves credit to small businesses and consumers by lending against securities backed by business and consumer loans.
We have delivered a full financial regulatory reform proposal to Congress, and we are working closely with lawmakers to see that comprehensive legislation to protect consumers and ensure the safety and stability of our financial system is enacted this year.
