Capital Purchase Program (CPP)

What Is the Capital Purchase Program (CPP)?

The Capital Purchase Program (CPP) was a U.S. Treasury program designed to provide new capital to banks, allowing them to loan more money to businesses and thus stimulate the economy. Under this program, the U.S. Treasury announced it would purchase up to $250 billion of senior preferred shares of qualifying U.S. banks and savings institutions. Subscribing banks had to be willing to sell an amount of stock equal to 1-3% of their risk-weighted assets.

Understanding the Capital Purchase Program (CPP)

The Capital Purchase Program was offered to the financial community on Oct. 14, 2008. To participate in the program, banks and savings institutions had to respond by Nov. 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 purchasing mortgage-backed securities and whole loans. However, within two weeks of enactment, it shifted focus to the preferred stock model, ultimately providing capital to 707 financial institutions, across 48 states. Initially however, the following nine major financial institutions received funds prior to Oct. 29, 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 March 2020 report are as follows:

  • As of Jan. 31, 2020, about $20 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.

Article Sources
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  1. U.S. Department of the Treasury. "Treasury Announces TARP Capital Purchase Program Description." Accessed May 25, 2021.

  2. Government Accountability Office. "Troubled Asset Relief Program: Capital Purchase Program Largely Has Wound Down," Pages 3-4. Accessed May 25, 2021.

  3. U.S. Department of the Treasury. "Capital Purchase Program." Accessed May 25, 2021.

  4. Congressional Research Service. "The Emergency Economic Stabilization Act and Current Financial Turmoil: Issues and Analysis." Pages 8-9. Accessed May 25, 2021.

  5. Congressional Budget Office. "Report on the Troubled Asset Relief Program— March 2020." Accessed May 25, 2021.