In our ongoing effort to provide our clients and friends of the firm with updated information and insight on developments related to legislation to support the financial markets, the Foley & Lardner LLP Financial Crisis Response Team is pleased to provide the following summary of today's events in Washington.
House and Senate negotiators, along with representatives of the President and Treasury Secretary Henry Paulson, worked through the day Saturday and into the early hours Sunday morning to craft a compromise bill on the financial bail-out. Below is an outline of the compromise legislation.
We will continue to keep you updated as votes occur in the House and Senate. The House may vote on a bill as early as Monday, while the Senate will most likely vote Wednesday or Thursday.
Emergency Economic Stabilization Act of 2008
Main Programs Relating to Troubled Mortgages:
Troubled Assets Relief Program (TARP): The bill makes immediately available to the Treasury Secretary $250 billion to purchase troubled assets; $100 billion will be available upon the Secretary's report to Congress, and its expenditure must be certified by the President. An additional $350 billion would be available only upon Congressional action.
Troubled Assets Insurance: The bill requires the Treasury Secretary to make available a guarantee program for troubled assets. Companies that avail themselves of this option must pay premiums that will vary based on the level of risk presented by their troubled assets.
Executive Compensation: The bill includes limits on executive compensation for certain entities participating in the program.
Oversight: The bill establishes a bipartisan oversight commission, split evenly between Republicans and Democrats, with reporting requirements to ensure proper disclosure to Congress and the public. It includes the creation of a Special Inspector General position and a Financial Stability oversight board. Parts of the bill implement strict conflict of interest and unjust enrichment rules. Additionally, if after five years the government experiences a net loss of taxpayer funds as a consequence of the purchase program, the President will be required to submit a legislative proposal to recoup such funds from program beneficiaries.
Mark-to-Market Study: The bill calls for a GAO study on the impacts of mark-to-market accounting standards and their effects on the banking crisis. It also includes a restatement of existing authority to suspend mark-to-market rules.
Taxpayer Equity: The bill calls for a mandatory equity stake in a financial institution that is taken over completely. In other cases, the Treasury Secretary may determine whether a proportional equity stake is appropriate.
Tax Benefits for Community Banks: This bill allows community banks to take capital losses on GSE assets against ordinary income.