US Treasury Releases Details Of Financial Stability Plan

The U.S. Treasury today announced its Financial Stability Plan, which it hopes will help bring about a solution to the nation’s banking crisis. With the plan, which will be implemented in three steps, the Treasury is hoping “to clean up and strengthen the nation’s banks, bring in private capital to restart lending, and to go around the banking system directly to the markets that consumers and businesses depend on.”

The three steps in summary are:

Require banking institutions to go through a comprehensive stress test, with capital being provided to those banks and financial institutions that are in need of capital. The capital that will be provided by the treasury is designed to be a bridge to private capital. Under this plan, the capital invested in these institutions, will be placed in a new Financial Stability Trust.

In addition to the Financial Stability Trust, the Treasury Department is planning a Public-Private Investment Fund with the FDIC and the private sector. This program is being designed to provide capital and financing that will leverage private funds in the hopes of getting private capital markets to work again. The Public-Private Investment Fund will target the mortgage related loans and assets that are burdening the balance sheets of the nation’s banks.

In conjunction with the Federal Reserve, the Treasury is “prepared to commit up to a trillion dollars to support a Consumer and Business Lending Initiative.” It is hoped that this lending program, which will be a part of the Federal Reserve’s Term Asset Backed Securities Loan Facility, which was announced last November, will get the consumer credit markets working again.

Under this initiative, the Term Asset Backed Securities Loan Facility will be expanded, to target the markets for small business lending, student loans, consumer and auto finance, and commercial mortgages. To bolster small business lending, the government will also increase the federally guaranteed portion of Small Business Administration loans and the SBA will be given increased powers to expedite loan approvals.

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