
Capital Purchase Program (CPP)
Initially however, the following nine major financial institutions received funds prior to Oct. 29, 2008: Bank of America Corporation Bank of New York Mellon Corporation Citigroup Incorporated Goldman Sachs Group Incorporated JPMorgan Chase & Company Part of the TARP legislation overseeing the CPP mandated the strict monitoring of the program’s results, and the creation of annual reports by the Office of Management and Budget (OMB) on the program’s costs. The Capital Purchase Program (CPP) was a U.S. Treasury program designed to provide new capital to banks, allowing them to loan more money to businesses and thus stimulate the economy. The financial institutions that remain in the program are continually subject to strict restrictions on the compensation they can provide to executives, as well as the dividends they may pay out to shareholders, as well as the amount of common stock they may repurchase.
What Is the Capital Purchase Program (CPP)?
The Capital Purchase Program (CPP) was a U.S. Treasury program designed to provide new capital to banks, allowing them to loan more money to businesses and thus stimulate the economy. Under this program, the U.S. Treasury announced it would purchase up to $250 billion of senior preferred shares of qualifying U.S. banks and savings institutions. Subscribing banks had to be willing to sell an amount of stock equal to 1-3% of their risk-weighted assets.
Understanding the Capital Purchase Program (CPP)
The Capital Purchase Program was offered to the financial community on Oct. 14, 2008. To participate in the program, banks and savings institutions had to respond by Nov. 14, 2008. The shares paid a dividend of 5% per year for the first five years, then reset to 9% per year thereafter.
According to a Government Accountability Office, CPP — which was part of the Troubled Assets Relief Program (TARP), was initially created by the Emergency Economic Stabilization Act of 2008, with the primary focus of purchasing mortgage-backed securities and whole loans. However, within two weeks of enactment, it shifted focus to the preferred stock model, ultimately providing capital to 707 financial institutions, across 48 states. Initially however, the following nine major financial institutions received funds prior to Oct. 29, 2008:
What Has Happened Since
Part of the TARP legislation overseeing the CPP mandated the strict monitoring of the program’s results, and the creation of annual reports by the Office of Management and Budget (OMB) on the program’s costs. The law also requires the Congressional Budget Office (CBO) to prepare its own reports within 45 days of the OMB’s reports, each year. Some key findings from the CBO’s March 2020 report are as follows:
The financial institutions that remain in the program are continually subject to strict restrictions on the compensation they can provide to executives, as well as the dividends they may pay out to shareholders, as well as the amount of common stock they may repurchase.
Related terms:
Checking Account
A checking account is a deposit account held at a financial institution that allows deposits and withdrawals. Checking accounts are very liquid and can be accessed using checks, automated teller machines, and electronic debits, among other methods. read more
Common Stock
Common stock is a security that represents ownership in a corporation. read more
Congressional Oversight Panel (COP)
Congressional Oversight Panel (COP) was created by the U.S. Congress in 2008 to oversee for the U.S. Treasury's actions aimed at stabilizing the U.S. economy. read more
Emergency Credit
Emergency credit is a government loan to a financial institution during a time of crisis. Such loans are often called bailout loans. read more
Emergency Economic Stabilization Act (EESA) of 2008
The Emergency Economic Stabilization Act (EESA) of 2008 was passed by Congress to help repair the damage from the financial crisis of 2007-2008. read more
Federal Home Loan Bank (FHLB) System
The Federal Home Loan Bank (FHLB) System is a consortium of regional banks created to keep cash flowing to the nation's lending institutions. read more
Mortgage-Backed Security (MBS)
A mortgage-backed security (MBS) is an investment similar to a bond that consists of a bundle of home loans bought from the banks that issued them. read more
Stimulus Package
A stimulus package is a package of economic measures put together by a government to stimulate a struggling economy. read more
Too Big to Fail
"Too big to fail" describes a situation in which a business has become so deeply ingrained in the functionality of an economy that its failure would be disastrous to the economy at large. read more
Troubled Asset Relief Program (TARP)
The Troubled Asset Relief Program (TARP) created and run by the U.S. Treasury following the 2008 financial crisis and was designed to stabilize the financial system. read more