Treasury Shutters Capital Assistance Program For Major Banks

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The Treasury Department Announced Monday that it would be closing a program designed to potentially provide banks with more capital after having made only a single loan.

The Capital Assistance Program was set up earlier this year as a way to provide loans for the major banks that underwent "stress tests" to determine how they might perform if economic conditions worsened.

Of the 20 major banks and financial institutions that underwent the tests, only one, GMAC, proved unable to raise enough private capital to meet its needs, and is in discussion with Treasury over the terms of any additional loans and warrants that may be issued, Treasury said.

That loan will likely be made using the Troubled Asset Relief Program, or TARP, set up by the $700 billion financial rescue package that passed congress in the final days of the Bush administration.

It's a sign of the continuing recover of the financial sector, said Treasury Secretary Timothy Geithner.

"In January of this year, there was very little confidence in the financial system," he said. "Financial institutions could not borrow without guarantees provided by the government, and we faced the real prospect of having to use taxpayer resources to recapitalize the banks."

He added, "Today, banks are repaying the taxpayers with interest and credit is coming back, but we need to reinforce that improvement and ensure that small and medium sized businesses can borrow to create jobs on Main Street."

According to Treasury, banks successfully raised $80 billion in common equity, the highest quality capital, from private sources and $73 billion of TARP investments have been repaid over the last six months.

That has allowed President Barack Obama to remove a $750 billion placeholder request to anticipate future needs from the 2010 budget.

"On top of the repayments, Treasury has received $6.8 billion in dividend income and $2.9 billion in warrant related income. It anticipates another $50 billion in repayments over the next 12-18 months," Treasury said in a written statement. "On the whole, Treasury is borrowing less and taxpayer support for the financial sector has declined materially, because banks are meeting their needs in the private markets and repaying the government."

The department, however, remains focused on fostering a sustainable recovery and is working on ways to use the remaining TARP resources to make credit more available for both businesses and households.

"Progress in these areas has been slower than the in the financial markets more broadly, and there is more work to be done," it said.

The Treasury Department Announced Monday that it would be closing a program designed to potentially provide banks with more capital after having made only a single loan. The Capital Assistance Program was set up earlier this year as a way to provide loans for the major banks that underwent "stress tests" to determine how they might perform if economic conditions worsened. (Market News Provided by RTTNews)