Stimulus.org - Loans

Supplemental Financing for IMF

Jason Peuquet — Thu, 01 Oct 2009 19:25:18 +0000

Date:

June 24, 2009

Who:

Treasury

Policy Area:

Monetary Policy

Economic Target:

Government and GSEs

Action Type:

Loans

Maximum Amount:

75000000000

Amount Spent:

75000000000

Deficit Impact:

4973000000

As part of the Supplemental Appropriations Act (H.R. 2346), signed into law on 6/24/2009, Congress and the President agreed to add $75 billion in Special Drawing Rights (SDRs) at the International Monetary Fund. The funds will remain "available until expended" to buffer the IMF's reserves.

Source:

Text of Supplemental Appropriations Act of 2009

Notes:

Deficit impact of $75 billion increase in SDRs is estimated to cost the U.S. government $4.973 billion.

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Term Auction Facility

Maya MacGuineas — Fri, 10 Jul 2009 19:53:37 +0000

Term Auction Facility

Date:

December 12, 2007

Policy Area:

Financial Sector Policy

Economic Target:

Financial Institutions

Action Type:

Loans

Maximum Amount:

300000000000

Amount Spent:

The Term Auction Facility (TAF) allows banks and other financial institutions to pledge collateral in exchange for a loan from the Federal Reserve in order to alleviate liquidity pressures in short-term funding markets. The interest rate on the loan is determined by auction; such auctions are conducted biweekly for loans with a maturity of either 28 or 84 days.

On 5/2/2008 a Fed release increaed the maximum size of all auctions from $50 billion to $75 billion. A maximum of $150 billion could then be lent.

On 9/29/2008 a Fed release increased the maximum credit available in the 24-day and 84-day auction cycles to $300 billion.

On 10/7/2008 a Fed release established a third and fourth auction of three-month funding and increased the maximum size of each auction to $150 billion. A maximum of $600 billion could then be lent out.

On 6/25/2009 a Fed release reduced the maximum size of each auction from $150 billion to $125 billion each. A maximum of $500 billion could then be lent.

On 7/24/2009 a Fed release lowered the maximum size of each auction to $100 billion, although accepted bids for most recent auctions have been considerably smaller. A maximum of $400 billion could then be lent.

On 8/28/2009 a Fed release lowered the maximum size of each auction from $100 to $75 billion. A maximum of $300 can now be lent through the facility.

Source:

Federal Reserve TAF Announcements

Notes:

Amount spent indicates outstanding Term Auction Loans as of 5/10/2010 (http://www.federalreserve.gov/releases/h41/Current/). Activities of the Federal Reserve are not directly recorded in the federal budget. However, each year the Federal Reserve remits a portion of its earnings to the general treasury. This remittance is generally in the range of $20-$30 billion per year, but the CBO estimates that the Fed's earnings will be lower by approximately $90 billion over the next ten years.

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Term Repurchase Transactions

Maya MacGuineas — Fri, 10 Jul 2009 19:49:58 +0000

Term Repurchase Transactions

Date:

March 7, 2008

Policy Area:

Financial Sector Policy

Economic Target:

Financial Institutions

Action Type:

Loans

Maximum Amount:

100000000000

Maximum Amount Special Symbol:

Amount Spent:

Program allows primary dealers (i.e., banks or securities firms that trade directly with the Federal Reserve) to trade securities in exchange for a 28-day cash loan from Federal Reserve. The primary dealer gives the Federal Reserve a security and receives a cash loan, and also agrees to buy back the security in 28 days for a fixed price.

Source:

Federal Reserve March 7 Statement

Notes:

Amount spent current as of 4/13/2010 (http://www.federalreserve.gov/releases/h41/Current/). Total purchases were "expected to cumulate" at $100 billion, but in fact reached over this amount at their peak. Activities of the Federal Reserve are not directly recorded in the federal budget. However, each year the Federal Reserve remits a portion of its earnings to the general treasury. This remittance is generally in the range of $20-$30 billion per year, but the CBO estimates that the Fed's earnings will be lower by approximately $90 billion over the next ten years.

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Term Securities Lending Facility

Maya MacGuineas — Fri, 10 Jul 2009 19:48:58 +0000

Term Securities Lending Facility

Date:

March 11, 2008

Policy Area:

Financial Sector Policy

Economic Target:

Financial Institutions

Action Type:

Loans

Maximum Amount:

75000000000

Amount Spent:

Lending entity created by the Federal Reserve to promote liquidity for primary dealers in the financing markets for Treasury and other collateral. A primary dealer is a bank or securities firm that trades directly with the Federal Reserve. Loans given are for a 28-day period. Initially, the maximum lending allowed through the facility was $200 billion.

However, in a Fed press release on 6/25/2009, the Fed reduced the maximum loan amount available through the facility to $75 billion due to weak demand in recent months.

As has been previously announced, the Fed closed this program on February 1, 2010, along with three other Fed lending facilities that were created in response to the economic and financial crisis: Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility, Commercial Paper Funding Facility, and the Primary Dealer Credit Facility.

Source:

Federal Reserve Release 3/11/2008

Federal Reserve Release 6/25/2009

Fed Release 2/1/2010

Notes:

Amount spent indicates loans extended as of 6/9/2010 (http://www.federalreserve.gov/releases/h41/Current/). Activities of the Federal Reserve are not directly recorded in the federal budget. However, each year the Federal Reserve remits a portion of its earnings to the general treasury. This remittance is generally in the range of $20-$30 billion per year, but the CBO estimates that the Fed's earnings will be lower by approximately $90 billion over the next ten years.

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Bear Stearns Funding

Maya MacGuineas — Fri, 10 Jul 2009 19:48:07 +0000

Bear Stearns

Date:

March 14, 2008

Policy Area:

Financial Sector Policy

Economic Target:

Financial Institutions

Action Type:

Loans

Maximum Amount:

29000000000

Amount Spent:

1417000000

To prevent further market disorder in the wake of Bear Stearn's collapse, the Fed issued $29 billion in non-recourse loans to a holding company ("Maiden Lane, LLC") set up by J.P Morgan to manage and gradually liquidate Bear Stearns' assets.

Source:

Federal Reserve March 4 Release

Notes:

Amount spent indicates loan extended as of 1/16/2013 (http://www.federalreserve.gov/releases/h41/Current/). The $29 billion in loans to Bear Stearns in 2008 is only worth $26 billion in 2009 dollars, which is how the Fed reports it on its balance sheet. Activities of the Federal Reserve are not directly recorded in the federal budget. However, each year the Federal Reserve remits a portion of its earnings to the general treasury. This remittance is generally in the range of $20-$30 billion per year, but the CBO estimates that the Fed's earnings will be lower by approximately $90 billion over the next ten years.

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Primary Dealer Credit Facility

Maya MacGuineas — Fri, 10 Jul 2009 19:46:21 +0000

Primary Dealer Credit Facility

Date:

July 20, 2008

Policy Area:

Financial Sector Policy

Economic Target:

Financial Institutions

Action Type:

Loans

Maximum Amount:

134066000000

Amount Spent:

Overnight lending program allows primary dealers to use collateral to borrow at the Federal Reserve's "discount window." A primary dealer is a bank or securities firm that trades directly with the Federal Reserve. This lending facility gives primary dealers greater capacity to provide financing in securities markets.

On August 17, 2007, the Federal Reserve increased the maximum maturity of primary credit loans to 30 days, citing a slight deterioration in financial market conditions.

On March 16, 2008, the Federal Reserve further increased the maximum maturity to 90 days.

On November 17, 2009, the Federal reduces the maximum maturity from 90 to 28 days, noting improvements in financial markets.

Source:

Federal Reserve March 16 Release

Federal Reserve November 17 Release

Fed Release 2/1/2010

Notes:

Maximum amount is the peak cumulative cost of the facility, which occurred on October 8, 2008. Amount spent indicates outstanding loans as of 6/9/2010 (http://www.federalreserve.gov/releases/h41/Current/). Activities of the Federal Reserve are not directly recorded in the federal budget. However, each year the Federal Reserve remits a portion of its earnings to the general treasury. This remittance is generally in the range of $20-$30 billion per year, but the CBO estimates that the Fed's earnings will be lower by approximately $90 billion over the next ten years.

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Options on Term Security Lending Facility Auctions

Maya MacGuineas — Fri, 10 Jul 2009 19:45:11 +0000

Date:

September 15, 2008

Policy Area:

Financial Sector Policy

Economic Target:

Financial Institutions

Action Type:

Loans

Maximum Amount:

50000000000

Amount Spent:

Federal Reserve auctions an additional $50 billion (maximum) of options under its Term Security Lending Facility (TSLF) auctions. Participating primary dealers receive Treasury securities (Treasury bills, notes, bonds or TIPS) in exchange for approved forms of collateral. Loans are short-term, usually less than the 28 days for normal TSLF loans. Primary dealers might exercise this option during times when they typically face heightened market pressure to hold additional collateral, such as near the end of the business quarter.

Source:

Program Details from New York Fed

Current Operations

Notes:

Maximum amount is announced maximum value of program. Amount spent is total value of options not yet exercised or not yet at maturity (see here for details). Data current as of 10/7/2009. Activities of the Federal Reserve are not directly recorded in the federal budget. However, each year the Federal Reserve remits a portion of its earnings to the general treasury. This remittance is generally in the range of $20-$30 billion per year, but the CBO estimates that the Fed's earnings will be lower by approximately $90 billion over the next ten years.

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Lehman Brothers Bankruptcy Loans

Maya MacGuineas — Fri, 10 Jul 2009 19:42:49 +0000

Date:

September 15, 2008

Policy Area:

Financial Sector Policy

Economic Target:

Financial Institutions

Action Type:

Loans

Maximum Amount:

138000000000

Amount Spent:

Total of two loans from Federal Reserve to J.P. Morgan to promote orderly dismantling of Lehman Brothers assets and trades.

Source:

Federal Reserve September Decision

Notes:

Loan was issued by Fed to J.P. Morgan and paid back in its entirety. Activities of the Federal Reserve are not directly recorded in the federal budget. However, each year the Federal Reserve remits a portion of its earnings to the general treasury. This remittance is generally in the range of $20-$30 billion per year, but the CBO estimates that the Fed's earnings will be lower by approximately $90 billion over the next ten years.

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Fed Line of Credit to AIG

Maya MacGuineas — Fri, 10 Jul 2009 19:39:11 +0000

Fed Line of Credit to AIG

Date:

September 16, 2008

Policy Area:

Financial Sector Policy

Economic Target:

AIG

Action Type:

Loans

Maximum Amount:

60000000000

Amount Spent:

The Fed originally created a credit-lending facility from which AIG was allowed to draw up to $85 billion. After a $40 billion loan from TARP funds, the Fed's line of credit was reduced to $60 billion.

On 3/2/2009, the Federal Reserve and Treasury announced another major restructuring of its support for AIG. The Fed's existing $60 billion dollar credit facility will be reduced to a minimum value of $25 billion and supplemented by several other forms of support:

The Fed will provide up to $26 billion in financing in exchange for preferred interest in a special purpose vehicle that was created to hold the common stock of two AIG life insurance subsidiary companies, the American Life Insurance Company and the American International Assurance Company.

Additionally, the Fed will provide new loans worth up to $8.5 billion dollars to a special purpose vehicle of AIG's life insurance subsidiaries, which would repay the loans from income generated by its existing life insurance policies.

Altogether, the Fed's actions should still achieve a total value of approximately $60 billion (minimum of $25 billion in revolving credit facility, $26 billion for in preferred interests in SPV, and $8.5 billion in new loans). The level of Fed funds currently committed through these channels is unknown.

On 1/14/2011, Treasury announced that the AIG recapitalization plan had been completed, meaning that the line of credit to AIG had been fully repaid.

Source:

Federal Reserve 3/2/2009 Release

Federal Reserve 11/10/2008 Release

January 14 Treasury Release

Notes:

Amount spent is current as of 1/19/2011 (http://www.federalreserve.gov/releases/h41/Current/). Activities of the Federal Reserve are not directly recorded in the federal budget. However, each year the Federal Reserve remits a portion of its earnings to the general treasury. This remittance is generally in the range of $20-$30 billion per year, but the CBO estimates that the Fed's earnings will be lower by approximately $90 billion over the next ten years.

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Money Market Mutual Fund Liquidity Facility

Maya MacGuineas — Fri, 10 Jul 2009 19:36:34 +0000

Money Market Mutual Fund Liquidity Facility

Date:

September 19, 2008

Policy Area:

Financial Sector Policy

Economic Target:

Financial Institutions

Action Type:

Loans

Maximum Amount:

145890000000

Amount Spent:

Establishment of Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility to allow Federal Reserve to increases market liquidity by purchasing three month unsecured and asset-backed commercial paper directly from selected corporate issuers.

As has been previously announced, the Fed closed this program on February 1, 2010, along with three other Fed lending facilities that were created in response to the economic and financial crisis: Term Securities Lending Facility, Commercial Paper Funding Facility, and the Primary Dealer Credit Facility.

Source:

Federal Reserve Oct. 7 Release

Fed Release 2/1/2010

Notes:

Amount spent indicates outstanding loans as of 10/21/2009 (http://www.federalreserve.gov/releases/h41/Current/). Facility maximum lending amount is unlimited, but never exceeded $416 billion. Activities of the Federal Reserve are not directly recorded in the federal budget. However, each year the Federal Reserve remits a portion of its earnings to the general treasury. This remittance is generally in the range of $20-$30 billion per year, but the CBO estimates that the Fed's earnings will be lower by approximately $90 billion over the next ten years.

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Forward Term Auction Loan Facility

Maya MacGuineas — Fri, 10 Jul 2009 19:35:05 +0000

Date:

September 29, 2008

Policy Area:

Financial Sector Policy

Economic Target:

Financial Institutions

Action Type:

Loans

Maximum Amount:

44000000000

Amount Spent:

Total of two auctions for 17-day and 13-day Term Auction Facility (TAF) loans conducted in December, designed to provide market reassurance about availability of TAF funding at year end. Loans came due in late December 2008 and early January 2009 (all already repaid).

Source:

Federal Reserve Sep. 29th Release

Notes:

Maximum amount indicates amount lent across both options. Amount spent indicates net cost of loans.

Activities of the Federal Reserve are not directly recorded in the federal budget. However, each year the Federal Reserve remits a portion of its earnings to the general treasury. This remittance is generally in the range of $20-$30 billion per year, but the CBO estimates that the Fed's earnings will be lower by approximately $90 billion over the next ten years.

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Commercial Paper Funding Facility

Maya MacGuineas — Fri, 10 Jul 2009 19:33:57 +0000

Commercial Paper Funding Facility

Date:

October 7, 2008

Policy Area:

Financial Sector Policy

Economic Target:

Financial Institutions

Action Type:

Loans

Maximum Amount:

1800000000000

Amount Spent:

Federal Reserve increases market liquidity by purchasing three month unsecured and asset-backed commercial paper directly from selected corporate issuers.

As has been previously announced, the Fed closed this program on February 1, 2010, along with three other Fed lending facilities that were created in response to the economic and financial crisis: Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility, Primary Dealer Credit Facility, and the Term Securities Lending Facility.

Source:

Federal Reserve Oct. 7 Release

Fed Release 2/1/2010

Notes:

Maximum amount indicates size of the market. Amount spent indicates outstanding loans as of 7/28/2010 (http://www.federalreserve.gov/releases/h41/Current/). Activities of the Federal Reserve are not directly recorded in the federal budget. However, each year the Federal Reserve remits a portion of its earnings to the general treasury. This remittance is generally in the range of $20-$30 billion per year, but the CBO estimates that the Fed's earnings will be lower by approximately $90 billion over the next ten years.

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Fed Loan to AIG

Maya MacGuineas — Fri, 10 Jul 2009 19:32:45 +0000

Date:

October 8, 2008

Policy Area:

Financial Sector Policy

Economic Target:

AIG

Action Type:

Loans

Maximum Amount:

37800000000

Amount Spent:

The Federal Reserve took $37.8 billion in investment-grade, fixed-income securities from AIG, in return for cash.

Source:

Federal Reserve Oct. 8. Release

Notes:

On November 10th, upon the Federal Reserve's creation of two new limited liability companies formed to assist AIG with its bad assets, the Fed announced that these security-collateralized loans would be repaid by AIG and terminated.

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Money Market Investor Funding Facility

Maya MacGuineas — Fri, 10 Jul 2009 19:31:39 +0000

Date:

October 21, 2008

Policy Area:

Financial Sector Policy

Economic Target:

Financial Institutions

Action Type:

Loans

Maximum Amount:

540000000000

Amount Spent:

The Fed will fund private-sector investors to invest in mutual funds, promoting market liquidity. This entity was created by the Fed in response to the current financial crisis.

Source:

Federal Reserve Oct. 21 Release

Notes:

Potential maximum indicates lending allowance. Maximum amount spent indicates outstanding loans as of 10/21/2009 (http://www.federalreserve.gov/releases/h41/Current/). Activities of the Federal Reserve are not directly recorded in the federal budget. However, each year the Federal Reserve remits a portion of its earnings to the general treasury. This remittance is generally in the range of $20-$30 billion per year, but the CBO estimates that the Fed's earnings will be lower by approximately $90 billion over the next ten years.

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Term Asset-Backed Securities Loan Facility

Maya MacGuineas — Fri, 10 Jul 2009 19:26:56 +0000

TALF

Date:

November 25, 2008

Policy Area:

Financial Sector Policy

Economic Target:

Financial Institutions

Action Type:

Loans

Maximum Amount:

720000000000

Amount Spent:

550000000

Lending facility officially offers up to $1 trillion (originally set at $200 billion, but raised to $1 trillion on 2/10/2009 by the Obama administration) in liquidity to financial institutions that buy financial securities backed by small business loans, consumer lending for automobiles, students, credit cards and activities, as well as securities backed by loans on heavy machinery like agricultural equipment and car rental fleets. The Treasury Department has offered $100 billion in credit protection to the facility.

Part of TALF's funding is also part of the Public-Private Investment Program, run in conjunction with the Treasury's TARP funds (see companion TARP PPIP entry) and the FDIC (see companion FDIC PPIP entry), to help banks attract private investment for distressed bank loans and illiquid securities.

On April 20, 2009, Treasury Secretary Geithner released a letter stating that Treasury's "projected allocation" to TALF (via TARP funds) would be $80 billion dollars: $20 billion of this amount would support the original asset classes announced at the program's inception, $35 billion would support the expanded class of assets announced on March 19, 2009, and $25 billion would go to the purchase of legacy securities within the Public-Private Investment Program. TALF has an unofficial maximum lending capacity of ten times its TARP credit protection (i.e, an $80 billion in credit protection would yield $800 billion in maximum lending capacity).

On August 17, 2009, the Treasury and the Federal Reserve released a letter stating that TALF loans will be made available through 3/31/2010, extending the program from the previous 12/31/2009 termination date.

Source:

Federal Reserve Nov. 25 Release

March 3 Release on updated TALF Terms

Notes:

Maximum amount is the Fed's total exposure: $800 billion in loans minus $80 billion in credit protection from the Treasury. Amount spent indicates outstanding loans as of 1/16/2013 (http://www.federalreserve.gov/releases/h41/Current/). Activities of the Federal Reserve are not directly recorded in the federal budget. However, each year the Federal Reserve remits a portion of its earnings to the general treasury. This remittance is generally in the range of $20-$30 billion per year, but the CBO estimates that the Fed's earnings will be lower by approximately $90 billion over the next ten years.

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Automaker Loans for Energy Efficiency

suggp — Fri, 10 Jul 2009 18:38:53 +0000

Date:

September 25, 2008

Who:

Dept. of Energy

Policy Area:

Sector Policy (Non-Financial)

Economic Target:

Manufacturers

Action Type:

Loans

Maximum Amount:

25000000000

Amount Spent:

8000000000

Deficit Impact:

7510000000

Loans to automakers, provided under the ‘Advanced Technology Vehicles Manufacturing Incentive Program,' to retool factories and perform other activities related to producing “advanced technology vehicles” with better fuel economy performance.

Source:

Continuing Appropriations Resolution, 2009

Notes:

Deficit impact based upon net-present value of loans authorized. Total loans might equal less than $25 billion, since the risk of default appears to have increased. It is unknown how much has been issued in loans so far.

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Loans to Credit Unions

suggp — Fri, 10 Jul 2009 18:27:50 +0000

Date:

December 11, 2008

Policy Area:

Financial Sector Policy

Economic Target:

Financial Institutions

Action Type:

Loans

Maximum Amount:

41000000000

Amount Spent:

10000000000

Loans from the National Credit Union Administration’s Central Liquidity Facility to subsidize funding to help credit unions modify mortgages and to facilitate lending by financing corporate credit unions. Loans split equally between U.S. Central and WesCorp ($5 billion lent to each).

Source:

NCUA Central Lending Facility

NCUA Release 8/7/2009

Notes:

NCUA is the National Credit Union Administration. Deficit impact is unknown.

Amount spent indicates money spent as of 8/7/2009. See tables appended to CBO Director Douglas Elmendorf's Congressional testimony on 1/28/2009: http://budget.senate.gov/democratic/testimony/2009/01-28-FinancialMarkets_Testimony.pdf

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Assistance to Auto Industry

Maya MacGuineas — Fri, 10 Jul 2009 17:59:06 +0000

Auto Industry Assistance

Date:

December 19, 2008

Policy Area:

Sector Policy (Non-Financial)

Economic Target:

Manufacturers

Action Type:

Loans

Maximum Amount:

85000000000

Amount Spent:

41543000000

Deficit Impact:

19000000000

Loans to beleaguered domestic automakers under the "Automotive Industry Financing Program" within the Troubled Assets Relief Program (TARP).

In order to assist the beleaguered automaker industry, TARP has allocated $80 billion in loans and equity purchases for domestic automakers. This began with just under $18 billion in “bridge loans” to prevent Chrysler and General Motors in order to help these firms avoid bankruptcy. Although Chrysler and GM presented different difficulties and issues, in each case the Administration eventually considered bankruptcy the best option for future success by clearing away old liabilities. To provide working capital and exit financing for Chrysler and GM both before and through the bankruptcies in April and June, respectively, the Treasury made over $58 billion available from TARP funds. From the Treasury’s financial support during the bankruptcies and its assistance in reorganizing the companies, the government now holds 8 and 61 percent equity stakes in New Chrysler and New GM, respectively.

Source:

Troubled Assets Relief Program

Latest TARP Transaction Report

Notes:

Amount spent indicates loans and other funds issued as of 8/22/2012 (http://www.ustreas.gov/initiatives/eesa/transactions.shtml).

Maximum amount is based on Administration documents on commitments and potential use of TARP funds. Deficit impact calculated by CRFB, using CBO's practice of estimating costs on a risk-adjusted present value basis. Deficit impact is from CBO's March 2011 Report on TARP.

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Public-Private Investment Fund

Maya MacGuineas — Fri, 10 Jul 2009 17:43:15 +0000

Public Private Investment Fund

Date:

February 10, 2009

Policy Area:

Financial Sector Policy

Economic Target:

Financial Institutions

Action Type:

Loans

Maximum Amount:

75000000000

Amount Spent:

14030000000

Deficit Impact:

1403000000

See the companion FDIC entry for the Public-Private Investment Fund (PPIP) and the Fed entry for PPIP.

Program first announced by Treasury Secretary Geithner on 2/10/2009.

Program is run by the Treasury in conjunction with the Federal Reserve and Federal Deposit Insurance Corporation. It will enlist "$75 to $100 billion" of TARP capital to create up to $500 billion in total public-private asset purchasing power. The program may eventually expand to $1 trillion in total leveraged purchasing capacity. On April 21, 2009, Geither announced that $75 billion of the program's funds would come from TARP, with another $25 billion coming from the Treasury's existing support (also through TARP) of the TALF program.

The Treasury released details of the program on March 23, 2009. Its aim is to use public money to entice private purchase of distressed bank loans and illiquid securities. The program has two main components:

1) The "legacy loans" program uses public financing (via TARP) to help private entities purchase pools of bank loan assets. The FDIC is charged with guaranteeing the purchase of loans once they are sold, and the Treasury provides half of the initital financing required to purchase the loan. Under the terms of the program, banks determine the loans they consider distressed and put these loans up for auction to other private market participants. The FDIC determines the eligibility of the proposed loans, and specifies how much leverage it will allow for the initial purchase. The maximum potential leverage is a 6:1 ratio, meaning that any party that purchases a loan can make the purchase at a debt to equity ratio of no greater than 6:1. For example, if a pool of loan assets costs $42, an initial payout ("equity") of $6 would be required, creating $6 in equity and $36 in debt. The bidder that wins the auction for the loan is allowed to draw on the public-private investment fund for half of its equity cost. In the case of the previous example, the bidder could take $3 from the public-private partnership, and would be required to provide the other $3 itself. The buyer issues debt that is guaranteed by the FDIC to fund the remaining cost of purchasing the loan. The FDIC is then charged with managing and overseeing the servicing of this remaining debt.

2) The "legacy securities" program has two components:

a) The government will choose five "asset managers" (selected from an open application process) that agree to raise some amount of private capital to buy legacy securities. The government matches whatever funds these asset managers manage to raise (via TARP). The private funds are matched at least one to one, although the Treasury has indicated that it may provide as much as two or even three dollars for every dollar of private capital raised. The fund manager has substantial discretion in how he/she invests the funds.

b) The Fed's recently-started Term Asset Backed Securities Lending Facility (TALF) will be expanded to include asset classes of non-agency residential mortgage-backed securities, commercial mortgage-backed securities, and other classes of asset-backed securities. Asset managers who take part in the public-private investment fund (see above) will be allowed to participate jointly in TALF.

On July 8, 2009 the Treasury, FDIC, and Fed released details concerning the Legacy Securities program of PPIP. According to the release , the "Treasury will invest up to $30 billion [from the $100 PPIP maximum] of equity and debt in PPIFs [Public-Private Investment Funds] established with private sector fund managers and private investors for the purpose of purchasing legacy securities. Thus, Legacy Securities PPIP allows the Treasury to partner with leading investment management firms in a way that increases the flow of private capital into these markets while maintaining equity “upside” for US taxpayers."

On September 16, 2009 the FDIC announced a pilot sale of receivership assets to test the Legacy Loans Program. A total of 12 consortiums bid in a competitive process for a portfolio of $1.3 billion in residential mortgage loans owned by the FDIC as Receiver of Franklin Bank, LLC in Houston, Texas. Residential Credit Solutions (RCS), the winning bidder, will pay $64.2 million for a 50 percent equity stake in the LLC, and the LLC will issue a $727.8 million note to the FDIC.

On September 30, 2009 the Treasury announced the first public and private commitments for the legacy securities program.

Source:

Treasury Term Sheet 3/23/2009

Treasury Release 07/08/2009

Treasury Release 09/30/2009

Treasury Release 10/05/2009

Notes:

Maximum amount is Treasury's contribution from TARP funds. Current amount spent reflects total approved funds for Legacy Securities PPIP as of 8/22/2012 (http://www.financialstability.gov/latest/index.html). Deficit impact calculated from the program's subsidy rate (10%), reported in the CBO's January 2010 baseline (minus any distributions or dispositions).

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Public-Private Investment Fund

Maya MacGuineas — Fri, 10 Jul 2009 17:41:26 +0000

Date:

February 10, 2009

Who:

Treasury

Policy Area:

Financial Sector Policy

Economic Target:

Financial Institutions

Action Type:

Loans

Maximum Amount:

Amount Spent:

Deficit Impact:

See the companion FDIC entry for the Public-Private Investment Fund

Program first announced by Treasury Secretary Geithner on 2/10/2009.

Program is run by the Treasury in conjunction with the Federal Reserve and Federal Deposit Insurance Corporation. It will enlist "$75 to $100 billion" of TARP capital to create up to $500 billion in total public-private asset purchasing power. The program may eventually expand to $1 trillion in total leveraged purchasing capacity. On April 21, 2009, Geithner announced that $75 billion of the program's funds would come from TARP, with another $25 billion coming from the Treasury's existing support (also through TARP) of the TALF program.

1) The "legacy loans" program uses public financing (via TARP) to help private entities purchase pools of bank loan assets.

The FDIC is charged with guaranteeing the purchase of loans once they are sold, and the Treasury provides half of the initital financing required to purchase the loan. Under the terms of the program, banks determine the loans they consider distressed and put these loans up for auction to other private market participants.

The FDIC determines the eligibility of the proposed loans, and specifies how much leverage it will allow for the initial purchase.

The maximum potential leverage is a 6:1 ratio, meaning that any party that purchases a loan can make the purchase at a debt to equity ratio of no greater than 6:1.

For example, if a pool of loan assets costs $42, an initial payout ("equity") of $6 would be required, creating $6 in equity and $36 in debt.

The bidder that wins the auction for the loan is allowed to draw on the public-private investment fund for half of its equity cost.

In the case of the previous example, the bidder could take $3 from the public-private partnership, and would be required to provide the other $3 itself.

The buyer issues debt that is guaranteed by the FDIC to fund the remaining cost of purchasing the loan.

The FDIC is then charged with managing and overseeing the servicing of this remaining debt.

2) The "legacy securities" program has two components:

a) The government will choose five "asset managers" (selected from an open application process) that agree to raise some amount of private capital to buy legacy securities.

The government matches whatever funds these asset managers manage to raise (via TARP).

The private funds are matched at least one to one, although the Treasury has indicated that it may provide as much as two or even three dollars for every dollar of private capital raised.

The fund manager has substantial discretion in how he/she invests the funds.

Is not a top-level node