Emergency Economic Stabilization Act

Emergency Economic Stabilization Act Developments

Agreements were signed over the past weekend with the initial nine institutions electing to participate in Treasury’s Capital Purchase Program.  Treasury began delivering $125 billion in capital to those institutions on October 28.  A number of regional banks have also applied to receive approximately $35 billion in capital under the program.  CPP Transaction Report.  Treasury Press Release. 

On October 28, SIFMA and ASF jointly issued a comment letter relating to the development of the asset guarantee program authorized under the Emergency Economic Stabilization Act and requested that Treasury consider limiting and targeting the circumstances in which the guarantee program might be effectively used.  SIFMA/ASF Comment Letter

Internal Revenue Code Sec. 597 provides for rules to prevent a double tax benefit on the receipt by a bank or S&L of “federal financial assistance” pursuant to section 406(f) of the National Housing Act, section 21A of the Federal Home Loan Bank Act or section 11(f) or 13(c) of the Federal Deposit Insurance Act.  On October 14, the IRS announced that amounts furnished to financial institutions under TARP will not be treated as “federal financial assistance” within the meaning of Sec. 597.  IRS Notice 2008-101.

 

Tax Treatment of Fannie and Freddie Preferred Stock

Section 301 of the Emergency Economic Stabilization Act allows certain banking organizations to change the character of losses on certain holdings of Fannie Mae and Freddie Mac preferred stock from capital losses to ordinary losses for federal income tax purposes. The federal banking and thrift regulatory agencies announced that these banking organizations can recognize the economic benefit of these changes in tax treatment in the third quarter of 2008 for regulatory capital purposes.  FDIC Press Release.