On February 25, 2009, the US Treasury Department released details of the Capital Assistance Program (CAP), which will provide capital to qualified financial institutions. The CAP has two components. The first is a forward-looking capital assessment, or “stress-test,” that will evaluate the capital adequacy of a qualified financial institution under two alternative economic scenarios: a baseline, or expected, economic scenario, and a more adverse economic scenario. The second is access to additional high-quality capital through the sale of mandatorily convertible preferred stock to Treasury as a “bridge” to private capital in the future. We review the eligibility requirements and the program’s benefits, risks and responsibilities, as well as compare the CAP to the earlier Capital Purchase Program.
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