Financial Reform Watch

Chrysler Financial Receives $1.5 billion TARP Loan

The U.S. Treasury today announced a $1.5 billion, five-year loan to Chrysler Financial to help fund Chrysler auto loans made on or after January 1, 2009. This is a new loan made through the TARP’s Automotive Industry Financing Program, which was established as part of the December auto bailout. News outlets reported that shortly following Treasury’s announcement, Chrysler began offering zero percent interest financing for up to 60 months on several of its vehicles.

According to Treasury, the Automotive Industry Financing Program is intended to “prevent a significant disruption of the American automotive industry that poses a systemic risk to financial market stability and will have a negative effect on the real economy of the United States.” Treasury evaluates each application on a case-by-case basis and requires participants to conform to executive compensation standards, expenditure limitations, and other corporate governance requirements deemed necessary to protect taxpayers’ interests. The terms of the Chrysler loan are attached.

In other news today, Treasury also issued additional TARP executive compensation rules, which conform to the executive compensation standards Treasury adopted in October. Those standards include the following:

  • Incentive compensation can not encourage unnecessary and excessive risks that threaten the financial institution’s value.
  • Any bonus or incentive compensation paid to a senior executive based on data that are later proven inaccurate must be “clawed-back.”
  • No golden parachute payments
  • No tax deductions for executive compensation in excess of $500,000 for each senior executive

The interim final rules focus mostly on the record keeping and reporting requirements of Chief Executive and Chief Financial Officers and the next three “highly compensated” corporate executives. The rules and related documents are attached.

Dept. of Treasury:  Interim Final Rule on Executive Compensation (PDF)

Dept. of Treasury: Notice on Executive Compensation Provisions (PDF)

Dept. of Treasury:  FAQs on Executive Compensation Requirements Under CPP (PDF)

Dept. of Treasury:  Terms of Chrysler Loan Under Automotive Industry Financing Program (PDF)

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