TG-359The U.S. Department of the Treasury today announced that the Capital Assistance Program (CAP) which was set up to provide a mechanism for additional taxpayer support in financial institutions subject to the Supervisory Capital Assessment Program (SCAP) will close today with no investments having been made. Earlier today, the Federal Reserve announced that 18 of the 19 banks participating in the SCAP or stress tests were shown to have no additional capital need or have now fulfilled their need in the private market.
Only one institution, GMAC, has indicated a need for capital from Treasury and their capital need is expected to be lower than anticipated at the time the SCAP results were announced. This institution is expected to access the Troubled Asset Relief Program (TARP) Automotive Industry Financing Program to meet its capital need, and is in discussions with the Treasury on the structure of its investment.
In January of this year, there was very little confidence in the financial system. 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, said Treasury Secretary Tim Geithner. 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.
The results of the stress tests -- the most comprehensive, forward looking review of our nation's largest banks ever undertaken -- were released publicly by the Federal banking supervisors on May 7, 2009. These tests were intended to ensure that banks maintained a sufficient capital cushion to continue lending even in a more adverse economic scenario than was expected at the time.
In January, there was risk that the taxpayer would be called upon to provide up to the $75 billion of capital augmentation required by the SCAP. The President's Budget for 2010 included a placeholder for an additional $750 billion of funding to supplement the existing authority under the TARP. In the subsequent six months, banks successfully raised $80 billion in common equity, the highest quality capital, from private sources and $73 billion of TARP investments have been repaid. The President has also subsequently removed the placeholder for additional support for the financial system from the budget for 2010. 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. 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.
Despite this important progress, Treasury remains focused on fostering a sustainable recovery and ensuring that remaining resources in the TARP program are devoted making credit available to 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.