Treasury, Fed, and FDIC Detail Bailout

A joint statement by the Treasury, Federal Reserve, and the Federal Deposit Insurance Corporation (FDIC) released this morning details the implementation of three new fiduciary policies designed to strengthen the U.S. economy. The policies come in the wake of a global meeting between the member-nations of the G7, and are as follows:

• The Treasury will commit to a capital purchase program in which financial institutions can sell preferred shares to the U.S. government “on attractive terms that protect the taxpayer.”
• The FDIC will “temporarily guarantee the senior debt of all [insured institutions], as well as deposits in non-interest bearing deposit transaction accounts."
• The Fed’s Commercial Paper Funding Facility (CPFF) program will go into effect on October 27, and will consist of the purchase of 3-month maturity commercial paper.

According to the joint statement, “Together these three steps significantly strengthen the capital position and funding ability of U.S. financial institutions, enabling them to perform their role of underpinning overall economic growth…The actions taken today are a powerful step toward restoring the health of the global financial system.”

In an individual statement, Treasury Secretary Henry Paulson specified that $250 billion of the $700 billion bailout would go to equity purchase. Paulson had this to say: “We are acting with unprecedented speed taking unprecedented measures that we never thought would be necessary. But they are necessary to get our economy back on an even keel, and secure the confidence and future of our markets, our economy, and the economic well-being of all Americans.”