What is the 'Capital Assistance Program '

The Capital Assistance Program (CAP) was launched by the U.S. Treasury in February 2009, as part of a package of programs available to banks and financial institutions that were having trouble accessing funding in the wake of the financial crisis. The need for the program proved temporary as conditions for bank funding improved, and it was closed down in November 2009.

BREAKING DOWN 'Capital Assistance Program '

The Capital Assistance Program (CAP) was created as a core part of the Financial Stability Plan implemented to help banks access funding and maintain financial stability following the funding freezes associated with the financial crisis. Private sector funding to banks tends to dry up when there is concern that a bank has inadequate capital, as the bank may fail as a result. Confidence in such a situation is also key, to help prevent a bank run. The Treasury stated that the purpose of the CAP was to "restore confidence throughout the financial system that the nation's largest banking institutions have a sufficient capital cushion against larger than expected future losses, should they occur due to a more severe economic environment, and to support lending to creditworthy borrowers."

Under the program, Federal banking supervisors conducted forward-looking assessments to assess what the capital needs of U.S. banks would be under adversely changed economic conditions. If it was determined that any bank would require a capital buffer, in the light of scarce private sector funding at the time, Treasury undertook to provide government funds to provide that buffer. This funding would be provided in the form of a preferred security, carrying a 9% dividend and convertible at the issuer's option, or after seven years into common stock if not redeemed or converted before that date. These terms were intended to incentivize banks to redeem the securities or replace them with private sector funding when conditions permitted. There were a number of conditions attached to using CAP, including oversight of executive compensation, restrictions on dividends and share buybacks, and scrutiny of capital and lending plans by the banks.

By November 2009, which was the deadline to apply for CAP, Treasury announced that it was able to close the program, with 18 of the 19 banks under assessment either having no further capital need or being able to fulfill that need with private sector funding. Only GMAC had indicated a capital need, and it would access that via the Troubled Asset Relief Program.

  1. Bank

    A bank is a financial institution licensed as a receiver of deposits. ...
  2. Supervisory Capital Assessment ...

    A financial stress test conducted by the Federal Reserve System ...
  3. Capital Buffer

    A capital buffer is mandatory capital that financial institutions ...
  4. Assistance Agreement

    An Assistance Agreement outlines terms and conditions under which ...
  5. Financial Stability Plan (FSP)

    The Financial Stability Plan was an initiative by the Obama administration ...
  6. Catalog Of Federal Domestic Assistance ...

    The Catalog Of Federal Domestic Assistance (CDA) compendium of ...
Related Articles
  1. Insights

    Which Are the World's 10 Largest Private Banks?

    Most of the largest private banking providers in the world are headquartered in Europe or the United States.
  2. Investing

    Bank of America Stock: A Dividend Analysis (BAC)

    Learn about Bank of America, one of the largest U.S. financial institutions, its dividend policy, dividend yield, dividend safety and future prospects.
  3. Managing Wealth

    Liquidity And Toxicity: Will TARP Fix The Financial System?

    TARP is the government's attempt to forestall a deep, extended recession. Will it work?
  4. Personal Finance

    Banking Has Changed: What Does It Mean For Consumers?

    Banks have long been leading spenders on technological innovations. Learn the key changes in the banking industry and what institution is right for you.
  5. Financial Advisor

    Why Banks Don't Need Your Money to Make Loans

    Contrary to the story told in most economics textbooks, banks don't need your money to make loans, but they do want it to make those loans more profitable.
  6. Investing

    The Treasury and the Federal Reserve

    Find out how these two agencies create policies to manage the economy and keep it on an even keel.
  7. Investing

    5 Central Banks That Are Publicly Traded

    Learn about five central banks that have publicly traded shares. Explore shareholder voting and dividend rights for public and private holders.
  1. What is the banking sector?

    Learn why the banking sector is a vital industry to our economy, what it does to drive the economic growth and understand ... Read Answer >>
  2. What are the 9 major financial institutions?

    There are nine major types of financial institutions. Understand the major types of financial institutions that exist and ... Read Answer >>
  3. What is the average profit margin for a company in the banking sector?

    Learn what the average profit margin is for companies in the banking sector, along with other evaluation metrics often used ... Read Answer >>
  4. How do leverage ratios help to regulate how much banks lend or invest?

    Learn what leverage ratios mean for banks, how regulators restrict leverage, and what impact ratios have on a bank's ability ... Read Answer >>
  5. Why is the capital adequacy ratio important to shareholders?

    Understand what the capital adequacy ratio is and why it is a very important metric of financial soundness for evaluating ... Read Answer >>
Trading Center