10 February 2009

US Treasury Secretary Geithner introduces Financial Stability Plan

The Plan includes an amount of initially $500 billion to absorb toxic assets and up to $ 1 trillion extending the Fed's Term Asset Backed Securities Loan Facility. It will be accompanied by new, higher standards for transparency and accountability. 

Treasury Secretary Timothy Geithner unveiled the new four-point Financial Stability Plan of the Obama administration. “Our plan will help restart the flow of credit, clean up and strengthen our banks, and provide critical aid for homeowners and for small businesses”, Geithner said and announced that this will be accompanied by new, higher standards for transparency and accountability.

 

The government actions to ‘pull the financial system back from the edge of catastrophic failure’ were absolutely essential, but ‘inadequate’, Geithner criticized. “The force of government support was not comprehensive or quick enough to withstand the deepening pressure brought on by the weakening economy”, he said.

 

However, in a first response House Financial Services Committee Chairman Barney Frank said that he is concerned “that $50 billion to reduce foreclosures understates the amount that we will need”. He also criticized that the Secretary did not present further details of their foreclosure reduction plan.

 

The core program elements include:

• A new Capital Assistance Program to help ensure that our banking institutions have sufficient capital to withstand the challenges ahead, paired with a supervisory process to produce a more consistent and forward-looking assessment of the risks on banks' balance sheets and their potential capital needs.
• A new Public-Private Investment Fund on an initial scale of up to $500 billion, with the potential to expand up to $1 trillion, to catalyze the removal of legacy assets from the balance sheets of financial institutions. This fund will combine public and private capital with government financing to help free up capital to support new lending.
• A new Treasury and Federal Reserve initiative to dramatically expand – up to $1 trillion – the existing Term Asset-Backed Securities Lending Facility (TALF) in order to reduce credit spreads and restart the securitized credit markets that in recent years supported a substantial portion of lending to households, students, small businesses, and others.
• An extension of the FDIC's Temporary Liquidity Guarantee Program to October 31, 2009.
• A new framework of governance and oversight to help ensure that banks receiving funds are held responsible for appropriate use of those funds through stronger conditions on lending, dividends and executive compensation along with enhanced reporting to the public.

 

 

Full speech

Joint statement on the Financial Stability Plan

Statement Barney Frank

The new requirements will be available on the new website on: www.FinancialStability.gov

 

 

© US Treasury