Posts filed under 'Capital Purchase Programs'
President Announces Community Bank Program to Increase Credit Flow to Small Businesses
The President announced plans today that, if put into action, would lead to the realization of at least some much-needed and long-sought-after assistance for community banks. A copy of the President’s announcement is available here. (Skip to Page 2 for Details).
According to the President’s proposal, which is part of the White House’s “Financial Stability Plan,” the program would target small business lending, but would also offer a mechanism for banks with less than $1 billion in assets to access capital with an annual dividend rate of 3%. The announcement is short on specifics, but here are the basics:
(1) Banks will receive capital in an amount equaling up to 2% of risk-weighted assets;
(2) The annual dividends on the capital will equal 3% for the first five years and 9% thereafter; and
(3) Banks seeking to participate in the program will submit a “small business lending plan” in which the bank explains how additional capital will help increase its lending to small businesses. (Banks approved for the program that elect to participate will also be required to follow up with quarterly reports detailing small business activities).
Over the next few weeks, Treasury will work with community banks and the small business community to hammer out the program’s specifics. Notably, the release contemplates that banks already participating in the capital purchase program will be able to replace existing capital, which carries a 5% dividend (7.7% for S-Corps), with investments under the new program.
The President also announced support for legislation that would increase the size of key Small Business Administration (SBA) loans. The aim of the increase would (supposedly) allow the SBA to ensure that more small businesses can get access to credit.
The first prong of the proposed legislation would increase the Maximum 7(a) loan from $2 million to $5 million, providing greater access to capital that businesses could use to boost working capital as well as purchase machinery equipment and real estate.
The second prong of the proposed legislation would increase the maximum 504 project loan from $2 million to $5 million for standard borrowers (supporting a total project of $12.5 million) and from $4 million to $5.5 million for manufacturers (supporting a total project of $13.75 million), thereby increasing the qualifying borrowers’ ability to undertake larger projects.
And the third prong of the proposed legislation would increase the maximum loan size of the SBA microloan programs from $35,000 to $50,000.
Add comment October 21, 2009
Treasury Releases Executive Compensation Restrictions for TARP Participants
The U.S. Treasury Department has released an Interim Final Rule (the Executive Compensation Rule) establishing governance and compensation standards for institutions participating in the Troubled Asset Relief Program (TARP). Any institution participating in the TARP Capital Purchase Program is subject to these rules so long as any obligation to Treasury remains outstanding. Review the press release announcing the IFR, and review the entire IFR.
Some of the IFR’s most important provisions include the following:
- Limitations on the amounts and types of bonuses payable to senior executive officers and other highly compensated employees.
- A ban on golden parachute payments—a term that reaches much farther than most people think, including almost any type of compensation received upon a covered employee’s departure from the institution.
- A “clawback” provision that requires an institution to recover any bonus, retention award or incentive compensation paid to a covered employee if the bonus, retention award or incentive compensation was paid in reliance on inaccurate financial information.
- Several corporate governance and board certification requirements, including a requirement for perquisite disclosures and for implementing luxury expense controls.
- A requirement for all TARP participants to provide shareholders with an annual, non-binding vote on the compensation of the institution’s executives.
- An affirmation that the rule’s restrictions will not apply to institutions receiving indirect financial assistance from UST, such as institutions receiving loans from the Term Asset Loan Facility.
If your institution is currently participating in any TARP program, you are required to comply with these rules. The following initial steps should help:
- Identify which of your employees will be subject to which restrictions. The number of employees covered by a given restriction varies depending on the type of restriction and the amount of Capital Purchase Program funding the institution has received.
- Review your institution’s employment and other compensation-based agreements, especially severance provisions, to verify that they comply with the IFR.
- Designate appropriate board committees to confer with the institution’s senior risk officers to identify compensation policies that may encourage unnecessary risk taking.
Add comment June 12, 2009
Treasury Announces Plans to Re-Open Capital Purchase Program Application Window
The TARP banner keeps unfurling. In a speech delivered to the Independent Community Bankers of America on May 13, 2009, U.S. Treasury Secretary Tim Geithner announced plans to re-open the TARP Capital Purchase Program (CPP) application window for financial institutions with less than $500 million in total assets. And unlike the relatively brief application window for prior CPP consideration, the re-opened window will remain open for six months. The window will be open to all entities eligible for CPP participation—public and private corporations, Subchapter S corporations and mutual institutions.
Secretary Geithner also announced that Treasury will increase the amount of CPP capital that qualifying institutions will be eligible to receive. While previous CPP investments were limited to 3% of an institution’s risk-weighted assets, Treasury will increase its CPP investment limit to up to 5% of an institution’s risk weighted assets. In addition, institutions that have already received CPP funding under the 3% limit will be allowed to apply for additional capital under the new 5% limit. Secretary Geithner added that the window for small banks to form a holding company to participate in CPP will also be re-opened for six months.
Although the announcement may be welcome news for community bankers who did not apply for CPP funding during the previous application period, Secretary Geithner’s speech was short on details. For example, he did not indicate whether previously declined applications will be reconsidered, and he did not provide the date when the application window will re-open. Rest assured, however, that Stinson Morrison Hecker LLP will be scrutinizing the details of the re-opened application process and will keep you informed of the facts as they unfold
Add comment May 18, 2009
