The FRB and the Treasury have announced the extension of the Term Asset-Backed Securities Loan Facility (the “TALF”).  For more on the TALF, please see the May 5, 2009 Alert.  The FRB and the Treasury approved extending TALF loans against newly issued asset-backed securities and legacy commercial mortgage-backed securities (“CMBS”) through March 31, 2010.  Because new CMBS deals can take a significant amount of time to arrange, the FRB and the Treasury approved TALF lending against newly issued CMBS through June 30, 2010.  The FRB stated that it will continue to monitor financial conditions and will consider in the future whether unusual and exigent circumstances warrant a further extension of the TALF to help promote financial stability and economic growth.  The FRB and the Treasury also announced that they are holding in abeyance any further expansion in the types of collateral eligible for the TALF.

As discussed in the July 28, 2009 Alert, the Obama Administration, through the Treasury, released the text of proposed legislation for various elements of its financial regulatory reform program (the “Program”) that it has submitted to Congress. The proposed legislation provides significant detail concerning many segments of the Program described in the Treasury’s June 2009 White Paper (as discussed in the June 23, 2009 Alert.) Many elements of the proposed legislation concerning the Program were described in the July 28, 2009 Alert, and additional segments are discussed below. There continues to be significant Congressional and industry opposition to certain elements of the Program and some or all of the segments of the Program may not be enacted. The Treasury, however, is reportedly continuing to pursue these initiatives in their current form. The Alert will continue to cover developments related to Treasury’s proposals as well as significant Congressional proposals dealing with financial regulatory reform.

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The Obama Administration, through the Treasury, has been releasing the text of proposed legislation for various elements of its financial regulatory reform program (the “Program”) as they are submitted to Congress. The proposed legislation provides significant detail concerning many segments of the Program described in the Treasury’s White Paper issued in June 2009 (as discussed in the June 23, 2009 Alert.) The proposed legislation on hedge fund adviser registration was described in the July 21, 2009 Alert. Some portions of the proposed legislation concerning the Program are described in this issue of the Alert. Other segments will be summarized in future issues of the Alert. As reported in the financial press, there is significant Congressional and industry opposition to certain elements of the Program (e.g., the elimination of the thrift charter, the selection of the Board of Governors of the Federal Reserve System as the systemic risk regulator and the establishment of a Consumer Financial Protection Agency), and some or all of the elements of the Program may not be enacted. The Treasury, however, is reportedly continuing to pursue these initiatives in their current form. The Alert will continue to cover developments in this area. [Read more →]

The Treasury, FRB and FDIC have released a joint update on the status of the Public Private Investment Program (“PPIP”).  For a further discussion of the PPIP, please see the March 24, 2009 Alert.  As part of the update, the Treasury announced nine asset managers for the Legacy Securities Program (the “Program”):

• AllianceBernstein, LP and its sub-advisors, Greenfield Partners, LLC and Rialto Capital Management, LLC;
• Angelo, Gordon & Co., L.P. and GE Capital Real Estate;
• BlackRock, Inc.;
• Invesco Ltd.;
• Marathon Asset Management, L.P.;
• Oaktree Capital Management, L.P.;
• RLJ Western Asset Management, LP.;
• The TCW Group, Inc.; and
• Wellington Management Company, LLP.

[Read more →]

In a notice of proposed rulemaking, the OCC, FRB, FDIC and OTS jointly requested public comments on proposed revisions to regulations implementing the Community Reinvestment Act. In accordance with the recently enacted Higher Education Opportunity Act, the federal banking agencies are proposing to implement regulations that would require them to consider, as a factor, when evaluating and rating a bank’s community reinvestment record, low-cost education loans provided to low-income borrowers in the bank’s assessment area who have an individual income of less than 50% of the area median income. The proposal defines “low-cost education loans” as (1) education loans originated by a bank through a Department of Education loan program or (2) any private education loan, as defined in the Truth in Lending Act, including loans under a state or local education loan program, originated by a bank for a student at an institution of higher education, with interest rates and fees no greater than those of comparable education loans offered through loan programs of the Department of Education. The agencies also propose to incorporate into their rules the statutory language that allows them, when assessing and rating the community reinvestment record of a bank that is not minority- or women-owned, to consider, as a factor, capital investment, loan participation, and other ventures undertaken by the bank in cooperation with minority- and women-owned banks and low-income credit unions, provided that these activities help meet the credit needs of the local communities in which the bank or credit union is chartered. The agencies seek comments on all aspects of the proposal, including: the definition of “education loans”, such as whether only loans for borrowers to attend post-secondary education or accredited institutions should be covered; the limitation of CRA consideration to education loans that the bank originated; the determination of which education loans are “low-cost” and which borrowers are “low-income”; and the consideration of education loans as consumer loans. Comments on the proposal must be received by July 30, 2009. Click here for the proposal.

The Treasury Department issued a white paper that sets out wide-ranging proposals aimed at overhauling the nation’s financial regulatory oversight structure. The proposals are grouped within five overarching regulatory objectives: (1) comprehensive financial regulatory agency and oversight reform, (2) comprehensive regulation of financial markets, (3) enhancing consumer protection, (4) developing a resolution regime to provide assistance to failing institutions, and (5) improving international regulatory standards and cooperation. [Read more →]

The Treasury announced its policy for the disposition of warrants received in connection with investments made under the Capital Purchase Program (“CPP”). For a further discussion of the CPP, please see the October 14, 2008, October 21, 2008 and October 27, 2008 Alerts. Under the CPP, the Treasury received warrants in the institutions receiving funds. In the case of investments in publicly-traded institutions, the Treasury received warrants to purchase common shares (“CPP Warrants”); these CPP Warrants have not been exercised. In the case of institutions that are not publicly-traded, Treasury received warrants to purchase preferred stock or debt; these warrants are no longer outstanding because they were exercised immediately upon closing the initial investment. [Read more →]

On June 17, 2009 the Treasury released a white paper entitled “Financial Regulatory Reform - A New Foundation: Rebuilding Financial Supervision and Regulation” (the “Proposal”) which outlined the Obama Administration’s ambitious plan to reform extensively the U.S. financial regulatory system.  If adopted in its entirety, the Proposal will result in wide-ranging changes that will affect every corner of the financial markets and the financial regulatory landscape.  For example, the Proposal would alter or eliminate several of the more significant recent legislative initiatives including the “functional regulation” regime of the Gramm-Leach-Bliley Act of 1999 (the “GLBA”) and the interstate branching approval process of the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the “Riegle-Neal Act”).  The Obama Administration hopes to sign legislation enacting the provisions of the Proposal by the end of 2009.  Rep. Barney Frank, Chairman of the House Financial Services Committee, has set regulatory reform hearings for the next several weeks and has indicated that he wishes to pass legislation in the August congressional recess.  Senator Chris Dodd, Chairman of the Senate Banking Committee, has indicated that he does not want to take up any legislation until the fall in order to prioritize health care legislation.  Given this legislative timeline, the deadlines for many of the reports called for in the Proposal may be difficult to achieve.

We examine each section of the Proposal in depth and discusses significant provisions that may not appear in more abbreviated summaries.  Section I through IV also provide commentary on some of the initial reactions to the Proposal by members of Congress and the financial services industry. [Read more →]

The Treasury has released an interim final rule on compensation and corporate governance standards for Troubled Asset Relief Program (“TARP”) recipients (the “Interim Final Rule”).  The Interim Final Rule implements the executive compensation and corporate governance provisions applicable to TARP recipients (collectively, the “Compensation and Governance Rules”) under the Emergency Economic Stabilization Act of 2008, as amended by the American Recovery and Reinvestment Act of 2009.  The Interim Final Rule revises and replaces in its entirety the previous Treasury guidance implementing the Compensation and Governance Rules, consolidates all of the Compensation and Governance Rules into a single rule, and adopts a few additional standards that will also be applicable to TARP recipients.

Determination of SEOs and Highly Compensated Employees.  The Compensation and Governance Rules generally apply to a TARP recipient’s senior executive officers (“SEOs”) and/or its most highly compensated employees.  To fall within either category, an individual must be an employee (e.g., not exclusively a partner of a partnership) of the TARP recipient (or any entity that is part of the same controlled group with the TARP recipient, determined using a 50% ownership test). [Read more →]

Executive Compensation Principles.  Treasury Secretary Geithner last week released a statement regarding compensation reform that is intended to better align compensation practices with sound risk-management, long-term growth and value creation.  His statement outlined a set of broad-based principles that he expects to evolve over time:

• Compensation plans should properly measure and reward performance;
• Compensation should be structured to account for the time horizon of risks;
• Compensation practices should be aligned with sound risk management;
• Golden parachutes and supplemental retirement packages should be reexamined to determine if they align the interests of executives and shareholders; and
• Transparency and accountability in the process of setting compensation should be promoted.

[Read more →]

Below please find  a link to the Treasury release on the Interim Final Rule for the TARP standards for compensation and corporate governance under the ARRA.   The full regulations may be found in the Code of Federal Regulations at 31 CFR 30.

Interim Final Rule on TARP Standards for Compensation and Corporate Governance

Final Rule on Capital Treatment of TARP Senior Preferred Stock. The FRB adopted a final rule (the “Rule”) on the treatment of senior perpetual preferred shares (“Senior Preferred Shares”) issued to the Treasury pursuant to the Troubled Asset Relief Program’s (“TARP”) Capital Purchase Program as well as under the TARP’s Targeted Investment Program, Capital Assistance Program and Asset Guarantee Program (collectively, the “TARP Programs”). The Rule permits bank holding companies to include without limit all Senior Preferred Shares issued under the TARP Programs in Tier 1 capital for purposes of the FRB’s risk-based and leverage capital rules and guidelines for bank holding companies. The Rule leaves largely unchanged and makes final the interim final rule (the “IF Rule”) discussed in the October 21, 2008 Alert. [Read more →]

In his speech to the Independent Community Bankers of America, Treasury Secretary Geithner announced that the Treasury will re-open the Capital Purchase Program (“CPP”) application window for banks with total assets under $500 million and raise from 3% of risk-weighted assets to 5% the amount for which qualifying institutions can apply. The application window is being reopened for all term sheets – public and private corporations, Subchapter S corporations, and mutual institutions. For further discussion of the CPP, please see the October 14, 2008, October 21, 2008, and October 27, 2008 Alerts for discussion of the CPP generally and for public institutions, the November 18, 2008 Alert for a discussion of the CPP for private institutions and the April 14, 2009 and April 21, 2009 Alerts for discussion of the CPP for mutual institutions. Current CPP participants will be allowed to reapply, and will have an expedited approval process. The Treasury will also extend the deadline for small banks to form a holding company for the purposes of the CPP. Both the window to form a holding company and the window to apply or re-apply for CPP will be open for six months. The Treasury plans to fund these additional capital investments under the CPP using the proceeds of the repayments it expects to receive from some of the largest banks.

In a letter to Senator Harry Reid (D. Nevada) Timothy Geithner, the Secretary of the Treasury (the “Treasury”) proposed a regulatory framework for regulating over-the-counter (“OTC”) derivatives. The OTC derivatives market, noted the Treasury currently is largely unregulated. The Treasury stated that regulation of the OTC derivatives market, including the market for credit default swaps, should be aimed to achieve four broad objectives: (1) preventing OTC derivatives activities from posing systemic risk to the financial system; (2) making the OTC derivatives market more efficient and transparent; (3) preventing market manipulation, fraud and other market abuses; and (4) seeing that OTC derivatives are not marketed to unsophisticated purchasers. [Read more →]

Following up on the Capital Purchase Program (“CPP”) terms for mutual holding companies, the Treasury released CPP terms for mutual banks and savings associations. [Read more →]