Treasury Announces EESA Program Teams

On Monday, October 13, Treasury Department Interim Assistant Secretary Neel Kashkari announced that the Treasury Department has established seven teams to implement different aspects of the Troubled Assets Relief Program (TARP). The Department is using the first $250 billion of authority granted under the Emergency Economic Stabilization Act of 2008 (EESA) to purchase equity in financial institutions, but it continues to develop guidelines for the securities and loan purchases authorized by the bailout legislation. The Department has not accounced how it will allocate the remaining $450 billion of funds available under EESA among the various programs. Different teams will focus on:

Mortgage-backed securities purchases. This team will identify which troubled assets to purchase, from whom to buy them, and which purchase mechanism to use. This team is designing auction protocols and will work with vendors to implement the mortgage-backed securities purchase program.

Whole loan purchases. The Treasury Department created this team to focus on purchasing whole mortgage loans, particularly from regional banks, which Kashkari stated are "particularly clogged" with such loans. This team is working with bank regulators to identify which types of loans to purchase, how to value them, and which purchase mechanism to use.

The troubled asset insurance program. This team is working to structure the bailout legislation's requirement that the Treasury Department implement an insurance program for troubled assets. This team is considering ideas to structure the program to create insurance for mortgage-backed securities and whole mortgage loans. The Treasury Department has issued a request for comments to solicit ideas from the public on how to structure the insurance program. Responses to the request for comment are due within 14 days.

Equity purchase program. The Treasury Department is considering purchasing equity interests in financial institutions, in addition to particular mortgages or mortgage-backed securities. This team is designing a standardized program to purchase equity in a range of financial institutions. Kashkari stated that the program will be voluntary and will be "designed with attractive terms to encourage participation from healthy institutions." He also said that the program would be designed to encourage new private capital to complement the public capital investment.

Homeownership preservation. Kashkari stated that the Treasury Department will "look for every opportunity possible to help homeowners" when it purchases mortgages and mortgage-backed securities. This team is working with the Department of Housing and Urban Development to maximize the opportunities to help as many homeowners as possible while also protecting taxpayers.

Executive compensation limits. The bailout legislation sets general limits on executive compensation for financial institutions that participate in the program, and this team is working to define those requirements. The team is working on different requirements in three areas: an auction purchase of troubled assets; equity investment or direct asset purchase; and intervention to prevent the failure of a "systemically significant institution."

Oversight and compliance. This team is working on implementing the bailout legislation's oversight and compliance provisions, including requiring the Treasury Department to work with the oversight board created by the legislation, the General Accounting Office, and the Special Inspector General for the TARP.