Thursday, November 6, 2008

U.S. Explores Its Options With Tarp

(WSJ) The Treasury Department said it is exploring additional ways to apply a $700 billion financial-industry rescue package approved by Congress in October.

"Treasury is committed to deploying the [Troubled Asset Relief Program] aggressively and is actively considering additional programs to strengthen financial institutions, restore the flow of lending, and address the many challenges to our financial markets posed by the ongoing housing correction," the Treasury said in its report, delivered to Congress Tuesday.

The program, known as TARP, was passed by Congress last month in response to the crisis in financial markets this year. It gives the Treasury wide latitude to purchase illiquid assets and stakes in financial firms, among other measures.

The Treasury said it hasn't made any decisions about new rescue programs and offered few details about what areas policy makers are exploring. The report addresses the issue of trying to slow the record levels of foreclosures. "In particular, Treasury will continue efforts to ensure loan modifications are sustainable," said the report. A separate Treasury report detailing minutes of an Oct. 13 meeting of members of the Financial Stability Oversight Board suggested the Treasury is focusing on how to address ailing mortgages.

The reports could provide fodder for forthcoming congressional oversight hearings. Some lawmakers have questioned whether Treasury's plan to inject $250 billion of capital into banks and other financial firms will spur lending to consumers and businesses.

There is growing pressure for Treasury to attach binding requirements to any capital injections, to prevent firms from hoarding the government funds or using them to pay for acquisitions.

Treasury is considering broadening the range of financial institutions in which it could purchase stakes to include bond insurance firms and specialty finance firms, said people familiar with the matter. And the Treasury, the Federal Deposit Insurance Corp. and other government agencies are said to be close to announcing a government program to address residential foreclosures at the root of the crisis.

Meanwhile, the Treasury has clarified life insurers are eligible to participate in its capital-infusion program, provided they are or apply to become a federally regulated bank or thrift. A significant number of insurance companies in the U.S. would qualify as they operate banks or thrifts.

Motivations to participate range from strengthening balance sheets to securing a source of money for acquisitions.

New York Life Insurance Co. said when it became clear the program was voluntary for insurers it decided it would not participate: "We are well capitalized with more capital than is required to maintain our triple-A ratings."

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