TARP Teams

World stock markets responded well this morning to the emerging consensus among European and U.S. officials to focus on capitalizing banks with government funds in exchange for an ownership stake in them. Wednesday's announcement from U.K. Prime Minister Gordon Brown that he plans to inject capital directly into banks and to guarantee interbank lending accelerated momentum for similar moves by the United States and European central bankers. Meetings on Friday and over the weekend among the G7 finance ministers and at the International Monetary Fund in Washington helped to bring these key players into alignment.

Meanwhile, the Treasury Department took further steps to implement the Troubled Asset Relief Program (TARP). In a speech this morning before the Institute of International Bankers, acting assistant secretary of the Office of Financial Stability (OFS) Neel Kashkari outlined progress and the seven internal policy teams established to execute the TARP: 

  1. Mortgage-backed Securities Purchase Program—will examine which assets to purchase, from whom, and how
  2. Whole Loan Purchase Program—will work with bank regulators to determine which loans to purchase first, how to value them, and how to purchase them
  3. Insurance Program—on Friday, Treasury solicited public comments on how to insure troubled assets; comments are due within 14 days, at which point OFS will develop the program
  4. Equity Purchase Program—will establish a standardized program to buy equity in a broad array of financial institutions; program will be voluntary with attractive terms so healthy institutions will participate and also raise private capital to complement public capital
  5. Homeownership Preservation—will work with the Department of Housing and Urban Development to help homeowners when the Treasury purchases mortgages and mortgage-backed securities
  6. Executive Compensation Program—will define firms’ participation requirements for three scenarios: auction purchase of troubled assets, broad equity or direct purchase program, and an intervention to prevent the failure of a systemically significant firm
  7. Compliance Program—will set up the Oversight Board, the on-site participation of the General Accounting Office, the selection of a special inspector general, and all the reporting mechanisms

Kashkari also announced that the Financial Stability Oversight Board, comprised of the chairman of the Federal Reserve, Treasury Secretary, director of the Federal Housing Finance Agency, SEC chairman, and Secretary of Housing and Urban Development held its first meeting and selected Bernanke to chair. In addition, Treasury has appointed five people to fulfill critical, albeit interim, roles:

  1. Chief Financial Officer—Tom Bloom; CFO of the Comptroller of the Currency and former CFO of the Department of Commerce
  2. Chief Risk Officer—Jonathan Fietcher; deputy director of the IMF Monetary and Capital Markets Department, former board member of both the Resolution Trust Corporation and the FDIC 
  3. Chief of Homeownership Preservation—Donna Gambrell; director of the Community Development Financial Institutions Fund at the FDIC and former Resolution Trust Corporation official 
  4. Chief Compliance Officer—Don Hammond; deputy director of Federal Reserve Bank Operations and Payment Systems and former Treasury fiscal assistant secretary 
  5. Chief Investment Officer—Reuben Jeffrey; under secretary of state for economic affairs and former chairman of the Commodity Futures Trading Commission

Last week, Treasury solicited proposals from six specialist law firms to advise the department on structuring the equity program. Treasury selected Simpson Thatcher on Friday. Kashkari also announced the Saturday selection of Chicago-based Ennis Knupp as the investment management consultant for the TARP. Three solicitations remain—the master custodian firm, which Kashkari referred to as the prime contractor of the purchase program; the securities asset manager; and the whole loan asset manager. Treasury plans to announce the selection of the master custodian firm within the next twenty-four hours and will announce the remaining two firms in the next few days. We will keep you posted on these and other developments.

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