DEFINITION of 'Capital Purchase Program - CPP'

A program sponsored by the U.S. Treasury designed to provide new capital to banks, which will in turn allow them to loan more money to businesses and thus stimulate the economy. Under this program, the U.S. Treasury will purchase up to $250 billion of senior preferred shares of qualifying U.S. banks and savings institutions. Subscribing banks must be willing to sell an amount of stock equal to 1-3% of their risk-weighted assets.

BREAKING DOWN 'Capital Purchase Program - CPP'

The Capital Purchase Program was offered to the financial community on October 14, 2008. To participate in the program, banks and savings institutions had to respond by November 14, 2008. The shares paid a dividend of 5% per year for the first five years, then reset to 9% per year thereafter.

According to a Government Accountability Office, CPP—which was part of the Troubled Assets Relief Program (TARP), was initially created by the Emergency Economic Stabilization Act of 2008, with the primary focus of purchase of mortgage-backed securities and whole loans,. However, within two weeks of enactment, it shifted focus to the preferred stock model, ultimately proving capital to 707 financial institutions, across 48 states. Initially however, the following nine major financial institutions received funds on October 28, 2008:

  • Bank of America Corporation
  • Bank of New York Mellon Corporation
  • Citigroup Incorporated
  • Goldman Sachs Group Incorporated
  • JPMorgan Chase & Company
  • Morgan Stanley
  • State Street Corporation
  • Wells Fargo and Company
  • Merrill Lynch

What Has Happened Since

Part of the TARP legislation overseeing the CPP mandated the strict monitoring of the program’s results, and the creation of annual reports by the Office of Management and Budget (OMB) on the program’s costs. The law also requires the Congressional Budget Office (CBO) to prepare its own reports within 45 days of the OMB’s reports, each year. Some key findings from the CBO’s January 2018 report are as follows:

  • As of January 31, 2018, less than $50 million of that stock remained outstanding.
  • The CBO estimates a net gain to the government of $16 billion from the CPP in the form of dividends, interest, and other gains.

The financial institutions that remain in the program are continually subject to strict restrictions on the compensation they can provide to executives, as well as the dividends they may pay out to shareholders, as well as the amount of common stock they may repurchase.

RELATED TERMS
  1. Financial Crisis Responsibility ...

    The Financial Crisis Responsibility Fee was a federal tax proposed ...
  2. Constant Percent Prepayment

    Constant percent prepayment is an annualized estimate of mortgage ...
  3. Program Trading

    Program trading uses a computer algorithms to buy and/or sell ...
  4. Risk-Weighted Assets

    Risk-weighted assets are the amount of capital that is required ...
  5. Cash for Clunkers

    Cash for Clunkers was a former federal program that gave owners ...
  6. Primary Dealer Credit Facility ...

    Primary Dealer Credit Facility is an institution created by the ...
Related Articles
  1. 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?
  2. Personal Finance

    Financial Analyst Training & Designation Programs

    Find out how to upgrade your financial skills with a series of analyst designations that are flexible and adaptable to the ever-changing finance industry.
  3. Investing

    Big Banks Hike Dividends After Fed's Stress Test

    JPMorgan and Citigroup are among the banks dishing out more to shareholders after proving their capital reserves can weather financial turmoil.
  4. Insights

    Banks Say "Too Big" Is Best Amid Cries for Breakup

    Top executives at JPMorgan, Citigroup and Wells Fargo fight calls for break up.
  5. Investing

    JPMorgan Chase & Co.:The Big Bank

    JPMorgan Chase & Co. isn't just the oldest and largest bank (in terms of assets) in the U.S., it's among the best stocks from the US banking space.
  6. Insights

    An Introduction to Government Loans

    Government loans further policymakers' efforts to create positive social outcomes by offering timely access to capital for qualified candidates.
  7. Investing

    Big Banks Saved $3.6B in Q1 Under Trump Tax Cuts

    America's financial institutions have historically paid some of the highest corporate tax rates.
  8. Investing

    Who Are Wells Fargo’s Main Competitors?

    Explore information on the main competitors of Wells Fargo, the other three of the "big four" U.S. banks: Citigroup, JPMorgan Chase and Bank of America.
  9. Insights

    The World's Top 10 Banks

    Learn more about the world's largest banks and how more financial power shifts eastward as China is home to four of the world's largest banks.
  10. Investing

    Who Are Bank of America’s Main Competitors? (BAC, JPM)

    Explore information and analysis on JPMorgan Chase, Wells Fargo and Citigroup, the three banks considered the main competitors to Bank of America.
RELATED FAQS
  1. What are the differences between Canada Pension Plans (CPP) and Social Security Benefits?

    Learn about the differences between the U.S. Social Security system and the Canada Pension Plan, and discover why one is ... Read Answer >>
  2. When should I take my Canadian Pension Plan distributions?

    The Canadian Pension Plan (CPP) is a retirement program from which contributing Canadians may receive payments at the age ... Read Answer >>
  3. What are the steps to applying for a Canada Pension Plan (CPP)?

    Learn how to apply for Canada Pension Plan, part of Canada's retirement income system. Also find out about available benefits ... Read Answer >>
Trading Center