Treasury, FDIC, OCC, OTS, and the Federal Reserve joint statement

Yesterday The U.S. Department of the Treasury, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the Office of Thrift Supervision, and the Federal Reserve Board issued a joint statement.

It contains affirmation regarding to the economic situation and its recovery. It’s stated in the report that the U.S. government stands firmly behind the banking system during this period of financial strain to ensure it will be able to perform its key function of providing credit to households and businesses: ensuring banks to have the capital and liquidity they need to provide the credit necessary to restore economic growth. 

Previous capital injections under the Troubled Asset Relief Program will also be eligible to be exchanged for the mandatory convertible preferred shares: enabling institutions to strengthen the quality of their capital.  

A Capital Assistance Program ensures banking institutions to be appropriately capitalized as it was announced on February 10, 2009. Under this program, which will be initiated on February 25, the capital needs of the major U.S. banking institutions will be evaluated under a more challenging economic environment. Institutions will get an opportunity to turn first to private sources of capital. If not, the temporary capital buffer will be made available from the government. This additional capital does not imply a new capital standard and it is not expected to be maintained on an ongoing basis, but it occurs due to a more severe economic environment, and to support lending to creditworthy borrowers. Any government capital supposed to be in the form of mandatory convertible preferred shares, converted, in order to keep banks in a well-capitalized position, into common equity shares only as needed over time and can be retired under improved financial conditions before the conversion becomes mandatory. 

The Capital Assistance Program pretends to ensure major banking institutions to get sufficient capital to perform their critical role in the financial system on an ongoing basis and can support economic recovery, even under an economic environment that is more challenging than it was expected. The customers and the providers of capital and funding can be assured that as a result of this program participating banks will be able to move forward to provide the credit necessary for the stabilization and recovery of the U.S. economy.