The Treasury Department is asking participants in the Capital Purchase Program (CPP), created under TARP, to enter into a standardized Securities Purchase Agreement. Before signing this Agreement and committing to participate in the CPP, financial institutions need to carefully consider the impact of Section 5.3 of the Agreement titled "Amendments."

Section 5.3 provides, in part, that the Treasury "may unilaterally amend any provision of this Agreement to the extent required to comply with any changes after the Signing Date in applicable federal statutes." As suggested in a letter from the American Association of Bank Directors to Secretary of the Treasury Paulson [click here], this provision could be a "Trojan Horse" that gives Congress a troubling level of control over participating institutions. For example, under Section 5.3, Congress arguably could direct program participants not to foreclose on specified mortgages or to modify the terms of existing mortgage loans. With the recent elections and changes in Congress and the Administration, this risk cannot be entirely discounted. The Treasury has not announced whether it will modify Section 5.3.

Our firm has been counseling our financial institution clients regarding the CPP, including the Agreement. On November 3, we conducted a teleconference pertaining to the CPP. If you have any questions about the CPP, or the interpretation of the newly issued form CPP application documents, please contact the following members of the firm's Capital Purchase Program Task Force: Alan Kaplinsky at 215.864.8544 or kaplinsky@ballardspahr.com, Justin Klein at 215.864.8606 or kleinj@ballardspahr.com, or Brian Pinheiro at 215.864.8511 or pinheiro@ballardspahr.com .

For further information on the Emergency Economic Stabilization Act, please contact:

Dominic De Simone, Practice Leader, Commercial Real Estate Recovery
Joseph Fanone, Public Finance Department
Thomas Hauser, Business and Finance Department
Alan Kaplinsky, Consumer Financial Services
Vincent Marriott III, Bankruptcy, Reorganization and Capital Recovery Group
Brian Pinheiro, Employee Benefits and Executive Compensation Group

Prior Alerts

Kashkari Testifies Before Senate Banking Committee - October 23, 2008

Treasury, Federal Reserve, and FDIC Joint Statement Capital Purchase Program - October 14, 2008

Remarks on TARP to Institute of International Bankers - October 13, 2008

Emergency Economic Stabilization Act of 2008/TARP - October 7, 2008

Employee Benefits and Executive Compensation Issues Connected to Emergency Economic Stabilization Act of 2008 - October 6, 2008

Emergency Economic Stabilization Act of 2008 - October 6, 2008


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