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September 28, 2008 (updated September 29, 2008) - Congress spent the weekend toiling over the Emergency Economic Stabilization Act of 2008. The House voted no to the bill by a vote of 228-205 on Monday afternoon, September 29.
The main purpose of the bill is to give the U.S. Treasury Secretary authority to purchase troubled assets from financial institutions to restore liquidity and stability in the U.S. financial system.
Elements in the preliminary bill, released Sunday evening, September 28, could still change. Congress is expected to readdress economic relief legislation on Thursday, October 2.
Purchases of Troubled Assets
Credit unions are included in the definition of a financial institution as provided by the bill. This permits credit unions to participate in the Troubled Assets Relief Program (TARP), which allows the Secretary to purchase troubled assets from any financial institution. The Secretary will publish guidelines to facilitate this process, including the:
- Mechanisms for purchasing troubled assets;
- Methods for pricing and valuing troubled assets;
- Procedures for selecting asset managers; and
- Criteria for identifying troubled assets for purchase.
Once the Secretary establishes the TARP, the Secretary is required to establish a program that guarantees troubled assets of financial institutions. The Secretary will establish risk-based premiums to cover the guarantees; the Secretary must report to Congress about the establishment of the guarantee program.
Graduated Authorization to Purchase
The bill authorizes $700 billion, requested by the Secretary, to implement TARP. The Secretary is authorized under the Act to immediately use $250 billion. He may access another $100 billion with a Presidential certification of need. The final $350 billion may be accessed by the President requesting such authority in a written report to Congress. The Secretary may use this additional authority unless Congress passes a joint resolution of disproval within 15 days.
Executive Compensation and Corporate Governance
When Treasury purchases troubled assets from an individual financial institution, the Secretary shall require that the financial institution meet appropriate standards for executive compensation and corporate governance. These standards shall be effective for the duration of the period that the Secretary holds an equity or debt position in the financial institution.
Oversight Board
A Financial Stability Oversight Board will be established to review and make recommendations regarding the exercise of authority permitted by this Act. The Board will ensure that the policies implemented protect the taxpayers and are in the economic interest of the United States. The Board will be comprised of the Chairman of the Federal Reserve System, the Secretary of the Treasury, the Director of the Federal Home Finance Agency, the Chairman of the Securities and Exchange Commission and the Secretary of the Department of Housing and Urban Development.
NASCUS will keep you apprised of changes to the bill as it winds itself through the legislative process. The bill is expected to be debated by Congress this week.
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