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In October 2008, in the wake of a financial crisis not seen since the Great Depression, the Congress enacted the Emergency Economic Stabilization Act of 2008 (EE SA) as an attempt to restore liquidity and stability to the financial markets. The act established the Troubled Assets Relief Program (TARP), authorizing the U.S. Secretary of the Treasury to purchase so-called troubled assets, such as mortgage-backed securities. To pursue this new aspect of its mission, the Treasury established the Office of Financia Stability (OFS), which continues to play an integral role in the federal response. “It was created to operate TARP,” explains Jenni Main, chief financial officer (CFO) at OFS.
“We have grown substantially over the last year. We’re now at about 200 employees. We’re an emergency program; we need to be very quick and responsive…. It’s a fishbowl environment, and the program has received a tremendous amount of attention from the very beginning, so we need to move with great speed, but we also need to be accurate.” EE SA authorized $700 billion for TAR P. “The biggest challenge,” says Main, “is [to combat] that old adage that ‘speed is the enemy of accuracy.’ When you put out $125 billion in one day you can’t make a mistake—you need to do that perfectly.”
Under the TARP, the Treasury developed a number of programs in an effort to build confidence in financial institutions, restart markets critical to borrowing and financing, and ease housing market woes. “The program I think most are familiar with is the Capital Purchase Program (CPP). It is really the cornerstone of the notion that addressing financial stability starts with the capital market,” notes Main. TARP funds were invested in banks and other financial institutions to increase their capital—to provide what Main refers to as a ‘cushion’ ensuring that the level of capital in banks was sufficient.
“We purchased preferred stock in these institutions… about $205 billion in over 650 financial institutions and banks around the country,” says Main. She reports that those participating in the CPP are required to pay dividends on the preferred stock at a 5 percent interest rate per year over the first five years, increasing to 9 percent thereafter. By the end of August 2009, the Treasury had received a total of $9.36 billion in dividends and interest payments.