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.

  1. Treasury Offering

    A treasury offering is the issuance of an additional class of ...
  2. Treasury Index

    The Treasury index is based on the U.S. Treasury's daily yield ...
  3. Treasury Stock (Treasury Shares)

    Treasury stock is outstanding stock the issuing company buys ...
  4. Direct Purchase Program

    A direct purchase program is a method by which individuals can ...
  5. Treasury Secretary

    The Treasury secretary is the head of the U.S. Department of ...
  6. U.S. Treasury

    Created in 1798, the U.S. Treasury is the government (Cabinet) ...
Related Articles
  1. Investing

    Buy Treasuries Directly From The Fed

    If you want government securities, go straight to the source. We'll show you how.
  2. 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.
  3. Investing

    Long-Term Treasury Bond ETFs Are Attracting Assets in 2016 (TLT, TLH)

    Discover five exchange-traded funds that invest in U.S. Treasury long-term bonds and experienced large year-to-date capital inflows as of March 4, 2016.
  4. Investing

    The Brexit Effect on U.S. Mortgage Rates

    The Brexit vote is expected to create a continuing investor rush to buy U.S. Treasuries as a safe-haven, resulting in lower mortgage rates for borrowers in the U.S.
  5. Investing

    A Look At National Debt And Government Bonds

    Learn the functions of the U.S. Treasury, and find out how and why it issues debt.
  6. Investing

    Treasuries Rout May Deepen on Mortgage Hedging

    Fed rate hikes may spur mortage bond owners to sell Treasuries to reduce their exposure to rising rates
  7. 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.
  8. Investing

    The True Risks Behind Preferred Stock ETFs (PFF, FPE)

    Consider the risks of investing in preferred stocks, including lack of diversification and sector risks in preferred stock ETFs.
  1. What's the difference between a capital stock and a treasury stock?

    Learn about treasury capital stock, how to calculate a company's capital and treasury stock, and the differences between ... Read Answer >>
  2. How do I calculate the capital to risk weight assets ratio for a bank in Excel?

    Learn more about the capital to risk-weighted assets ratio and how to calculate a bank's capital adequacy ratio using Microsoft ... Read Answer >>
Hot Definitions
  1. Gross Margin

    A company's total sales revenue minus its cost of goods sold, divided by the total sales revenue, expressed as a percentage. ...
  2. Inflation

    Inflation is the rate at which prices for goods and services is rising and the worth of currency is dropping.
  3. Discount Rate

    Discount rate is the interest rate charged to commercial banks and other depository institutions for loans received from ...
  4. Economies of Scale

    Economies of scale refer to reduced costs per unit that arise from increased total output of a product. For example, a larger ...
  5. Quick Ratio

    The quick ratio measures a company’s ability to meet its short-term obligations with its most liquid assets.
  6. Leverage

    Leverage results from using borrowed capital as a source of funding when investing to expand the firm's asset base and generate ...
Trading Center