What is the Financial Stability Plan (FSP)
The Financial Stability Plan (FSP) was a broad initiative rolled out by the Obama administration in early 2009 designed to stabilize the U.S. economy in the wake of the financial crisis of 2008-2009. The bailout plan took measures to solidify the American banking system, securities markets, and mortgage and consumer credit markets. According to a document issued by the U.S. Treasury, the plan attempted, "to attack our credit crisis on all fronts with our full arsenal of financial tools and the resources commensurate to the depth of the problem.”
Former Treasury Secretary Timothy Geithner, Federal Reserve Chairman Ben Bernanke, FDIC Chair Sheila Bair, Office of Thrift Supervision Director John Reich and Comptroller of the Currency John Dugan largely designed and enacted the FSP.
BREAKING DOWN Financial Stability Plan (FSP)
The Financial Stability Plan promised to create a new public-private governmental fund to absorb toxic assets and leverage private capital to stimulate the financial markets. It also aimed to further standardize the banking system and provide capital to unstable lending institutions. It also launched an initiative to restore consumer credit for stable borrowers.
The plan approached financial recovery through several key steps. The first involved a stress test for banks. This step assessed whether major financial institutions actually possessed the necessary assets to continue lending money. It also demanded new levels of transparency and accountability from banks and lending institutions.
Another aspect of the plan aimed to stabilize the housing market and stop the high rates of foreclosure. Toward this end, the plan committed $50 billion to help stop foreclosures with help from mortgage adjustments. It also declared an intention to bring mortgage rates down overall and provide additional flexibility for borrowers potentially facing foreclosure.
Impacts on Transparency
According to the plan, financial firms first needed to show how any government assistance would help the firms expand lending. Firms receiving assistance from the government had to submit monthly reports to the U.S. Department of the Treasury detailing the alllocation, the number of new loans created, and how many mortgage-backed or asset-backed securities they purchased.
Eventually, the Treasury Department also launched a website, in the name of “The Taxpayer’s Right to Know.” This website made public all information reported to the Treasury Department by firms receiving financial assistance from the treasury. In this way, the Treasury Department sought to let taxpayers decide for themselves whether the FSP attained success.