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Program Descriptions

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Guidelines for Systemically Significant Failing Institutions Program

The United States Department of the Treasury will determine eligibility of participants and allocation of resources under the Emergency Economic Stabilization Act (EESA) pursuant to the Systemically Significant Failing Institutions (SSFI) Program.  Unlike the broad-based Capital Purchase Program, Financial Institutions (as defined in EESA) will be considered for participation in the SSFI Program on a case-by-case basis.  There is no deadline for participation in this program.

Justification
The primary objective of this program is to provide stability and prevent disruption to financial markets in order to limit the impact on the economy and protect American jobs, savings, and retirement security from the failure of a systemically significant institution.  In an environment of substantially reduced confidence, severe strains, and high volatility in financial markets, the disorderly failure of a systemically significant institution could impose significant losses on creditors and counterparties, call into question the financial strength of other similarly situated financial institutions, disrupt financial markets, raise borrowing costs for households and businesses, and reduce household wealth.  The resulting financial strains could threaten the viability of otherwise financially sound businesses, institutions, and municipalities, resulting in adverse spillovers on employment, output, and income. 

Determination of Systemically Significant Failing Institution Status
In determining whether an institution is systemically significant and at substantial risk of failure, Treasury may consider, among other things:

1. 1.  The extent to which the failure of an institution could threaten the viability of its creditors and counterparties because of their direct exposures to the institution;
2. The number and size of financial institutions that are seen by investors or counterparties as similarly situated to the failing institution, or that would otherwise be likely to experience indirect contagion effects from the failure of the institution;
3. Whether the institution is sufficiently important to the nation’s financial and economic system that a disorderly failure would, with a high probability, cause major disruptions to credit markets or  payments and settlement systems, seriously destabilize key asset prices, significantly increase uncertainty or losses of confidence thereby materially weakening overall economic performance; or
4. The extent and probability of the institution’s ability to access alternative sources of capital and liquidity, whether from the private sector or other sources of government funds.

In making these judgments, Treasury will obtain and consider information from a variety of sources, and will take account of any recommendations received from the institution’s primary regulator, if applicable, or any other regulatory body in a position to provide insight into the potential consequences of the failure of a particular institution. 

Form, Terms, and Conditions of Treasury Investment in the Troubled Assets of a Systemically Significant Failing Institution
Treasury will determine the form, terms, and conditions of any investment made pursuant to this program on a case-by-case basis in accordance with the considerations mandated in EESA.  Treasury may invest in any financial instrument, including debt, equity, or warrants, that the Secretary of the Treasury determines to be a troubled asset, after consultation with the Chairman of the Board of Governors of the Federal Reserve System and notice to Congress.  Treasury will require any institution participating in this program to provide Treasury with warrants or alternative consideration, as necessary, to minimize the long-term costs and maximize the benefits to the taxpayers in accordance with EESA.  Treasury will also require any institution participating in the program to comply with the limitations on executive compensation applicable to SSFIs as set forth in Treasury Notice 2008-PSSFI.  In addition, Treasury will consider other measures, including limitations on the institution’s expenditures or bonuses, or any corporate governance requirements, to protect the taxpayers’ interests or reduce ongoing risks to the financial system.

These program guidelines are being published in accordance with the requirements of Section 101(d) of EESA.

Last Updated: November 25, 2008