Financial Stability Plan (FSP)

What is the Financial Stability Plan (FSP)?

The Financial Stability Plan (FSP) was a memo published by the U.S. Treasury under the Obama administration in early 2009 that outlined the planned implementation of the Emergency Economic Stabilization Act of 2008. The FSP was not an independent policy itself, but rather a set of talk points summarizing how the administration would carry out the Troubled Asset Relief Program and related programs intended to address the financial crisis of 2008-2009. Primary responsibility for the plan fell to the Treasury's Office of Financial Stability, but also involved co-operation with other government agencies.

Key Takeaways

Understanding the Financial Stability Plan (FSP)

The FSP took measures to solidify the American banking system, securities markets, and mortgage and consumer credit markets. According to the U.S. Treasury, the plan attempted, "to attack our credit crisis on all fronts with our full arsenal of financial tools and the resources commensurate to the depth of the problem.”

The Financial Stability Plan promised to create a new public-private governmental fund to absorb toxic assets and leverage private capital to stimulate the financial markets. It also aimed to further standardize the banking system and provide capital to unstable lending institutions. It also launched an initiative to restore consumer credit for stable borrowers.

The plan approached financial recovery through several key steps. The first involved a stress test for banks. This step assessed whether major financial institutions actually possessed the necessary assets to continue lending money. It also demanded new levels of transparency and accountability from banks and lending institutions.

Another aspect of the plan aimed to stabilize the housing market and stop the high rates of foreclosure. Toward this end, the plan committed $50 billion to help stop foreclosures with help from mortgage adjustments. It also declared an intention to bring mortgage rates down overall and provide additional flexibility for borrowers potentially facing foreclosure.

The plan was one part of a general agenda of monetary and fiscal stimulus policy that involved co-ordinated action by the Treasury, the Fed, and other financial regulators. Treasury Secretary Timothy Geithner, Federal Reserve Chair Ben Bernanke, FDIC Chair Sheila Bair, Office of Thrift Supervision Director John Reich and Comptroller of the Currency John Dugan largely designed and enacted the FSP.

Impacts on Transparency

Eventually, the Treasury Department also launched a website, in the name of “The Taxpayer’s Right to Know.” This website made public all information reported to the Treasury Department by firms receiving financial assistance from the treasury. In this way, the Treasury Department sought to let taxpayers decide for themselves whether the FSP attained success.