(Updates with details about why Treasury released information about the new insurance program this week.) By Sarah N. Lynch
Of DOW JONES NEWSWIRES WASHINGTON -(Dow Jones)- The U.S. Treasury Department on Friday released guidelines of the program it used under the $700 billion bailout package to justify its $20 billion rescue of Citigroup.
In addition, it unveiled guidelines for a new insurance program for troubled assets dubbed the Asset Guarantee Program. At this point, Treasury said it is exploring the use of this insurance program to provide Citigroup with a guarantee of up to $5 billion as part of an agreement that was disclosed in late November when the Treasury, Federal Reserve Board and Federal Deposit Insurance Corporation announced their plans to help rescue Citigroup.
Both the guidelines for the $20 billion purchase of Citigroup stock and the new insurance program were delivered to Congress this week as required by law. According to the Emergency Economic Stabilization Act, Treasury was required to submit a report to Congress with details of an insurance program for troubled assets no later than 90 days after the bill became law.
In addition, the report detailing the guidelines for Citigroup was released this week because Treasury completed the $20 billion capital purchase with Citigroup on Wednesday, and the department is required by law to submit a report to Congress within two business days.
Under the new insurance program, Treasury said it would assume a loss position on certain assets which the department will select, and collect a premium.
Although Treasury is currently considering using the insurance program for Citigroup, its report to Congress seemed to leave open the possibility that other institutions may utilize it. Participation in the insurance program, Treasury said, would be determined on a "case-by-case basis."
"The objective of this program is to foster financial market stability and thereby to strengthen the economy and protect American jobs, savings, and retirement security," Treasury said.
Treasury noted that it is currently reviewing the possibility of developing other programs to insure troubled assets as well.
The program used to purchase the $20 billion of preferred Citigroup stock, meanwhile, has been dubbed the "Targeted Investment Program." So far only Citigroup has used this program, and it is unclear if other companies may be eligible to utilize it in the future.
Treasury said it considered five factors before deciding if a company is eligible for either the Targeted Investment or the Asset Guarantee programs.
Those include the extent to which the "destabilization of the institution could threaten the viability of creditors" and whether or not an institution is "sufficiently important to the nation's financial and economic system that a loss of confidence in the firm's financial position could potentially cause major disruptions to the credit markets."
-By Sarah N. Lynch, Dow Jones Newswires; 202-862-6634; sarah.lynch@dowjones.com
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Publié le 02 janvier 2009 Copyright © 2009 Dowjones