The Emergency Economic Stabilization Act of 2008 has been enacted (Public Law No: 110-343 [GPO: Text, PDF]) . . .and in near record time. That, in itself is a wonder, given its girth and complexity. It is hard to believe that the Act represents the frenzied efforts of people in the Administration and Congress over the very short period of time that the economic crisis went from barely a mention to a media orchestrated climax. Whatever its origins—and the theatre of its announcement, rejection by the House of Representatives, adoption by the Senate and then adopted as sweetened by the House and signed by the President—the EESA is worth a careful read. My purpose here is to describe the detail of the EESA and suggest, beyond the suggestions by officials and the press about its innocuousness, some of the legal issues the EESA may give rise to.
I will start with a short executive style summary of the major provisions of the EESA. I will then provide a section-by-section analysis. I will then suggest preliminarily some of the more interesting legal issues the EESA may raise.
In another post I will expand the analysis to include a discussion of additional issues raised by the Administration’s recently announced efforts to purchase interests in at least nine large banks to shore up the markets for loans. The move is said to “help to return stability to the US banking sector and ultimately help preserve free markets.” US Unveils $250bn Banking Rescue, BBC News Online. The U.S. joins a number of other free market states in either nationalizing its banking sector or in moving further to become a private participant in markets it also regulates.
EESA EXECUTIVE SUMMARY:
Background:
On September 19, 2008, Secretary Paulson proposed a 3-page legislative proposal to Congress for Treasury Authority to Purchase Troubled Assets from financial institutions in order to promote economic stability. The proposal granted authority to the U.S. Treasury to issue up to $700 billion of Treasury securities to finance the purchase of troubled assets (residential or commercial mortgages and any securities, obligations, or other instruments that are based on or related to such mortgages, and any other financial instrument as determined necessary to promote financial market stability). The Program in its original form was rejected by both Democrats and Republicans in Congress. In response to the Treasury Department's proposal, Congressional lawmakers drafted an alternate 110-page version of the proposed legislation as an amendment to bill H.R. 3997, called the Emergency Economic Stabilization Act of 2008 (EESA). On September 29, 2008, H.R. 3997 failed passage as the original House of Representatives vehicle for EESA. After the failed House of Representatives vote, Senate leaders prepared the Senate version of the Emergency Economic Stabilization Act of 2008 as an amendment to bill H.R. 1424, an existing bill from the House of Representatives. The 450- page Senate version of the EESA, included the base of the economic rescue plan voted on in the House and revised it to include additional provisions. On October 1, 2008 the Senate passed bill H.R. 1424 as the vehicle for the economic rescue legislation. On October 3, 2008, the House of Representatives passed a motion to concur in Senate Amendments to H.R. 1424. The President of the United States signed the bill into law shortly thereafter.
Bill H.R. 1424 provides authority for the Federal United States Government to purchase and insure certain types of troubled assets for the purposes of providing stability to and preventing disruption in the economy and financial system and protecting taxpayers, to amend the Internal Revenue Code of 1986 to provide incentives for energy production and conservation, to extend certain expiring provisions, to provide individual income tax relief, and for other purposes. The bill has three divisions: Division A, referred to as the Emergency Economic Stabilization Act of 2008; Division B, referred to as the Energy Improvement and Extension Act of 2008; and Division C, referred to as the Tax Extenders and Alternative Minimum Tax Relief Act of 2008. An executive summary of the Emergency Economic Stabilization is presented in this document.
TITLE I. TROUBLED ASSETS RELIEF PROGRAM
Section 101. Authorizes the Secretary of the Treasury to establish a Troubled Asset Relief Program (TARP) to purchase troubled assets from financial institutions. Establishes an Office of Financial Stability within the Treasury Department to implement the TARP. Requires that the Treasury Secretary takes any actions necessary to implement the TARP, including establishing guidelines and policies to carry out the purposes of the Act, and prevention of unjust enrichment.
Section 102. If the TARP is established, requires the Secretary to also establish a program to guarantee troubled assets originated or issued prior to March 14, 2008. Establishes the Troubled Assets Insurance Financing Fund to deposit the premiums collected from participating financial institutions to provide sufficient reserves for the program. Requires the Secretary to report to Congress within 90 days after enactment of the Act on program to guarantee troubled assets.
Section 103. Requires the Secretary to take specific considerations into account including protecting taxpayers’ interests and minimizing the impact on the national debt when exercising authorities under the Act. Requires the Secretary to consider the long-term viability of an institution in determining the use of funds under the Act.
Section 104. Establishes the Financial Stability Oversight Board to review exercise of authorities under the Act and ensure that policies implemented are in accordance with the Act, in the economic interests of the United States and taxpayers. Requires that Financial Stability Oversight Board reports to Congress at least quarterly.
Section 105. Requires the Secretary to report to Congress 60 days after exercise of first authority and every thirty days thereafter on overview of Secretary’s actions and expenditure of funds. Requires the Secretary to provide Congress a written tranche report for every $50 billion in assets purchased. Requires the Secretary to submit a written Regulatory Modernization Report to Congress prior to April 30, 2009 on the current state of the financial markets.
Section 106. Authorizes the Secretary to exercise its authorities under the Act at any time. Authorizes the Secretary to enter into financial transactions regarding any troubled asset purchased under the Act. Requires that proceeds from sale of troubled assets are used to reduce national debt.
Section 107. Allows the Secretary to waive provisions of the Federal Acquisition Regulation where compelling circumstances make compliance contrary to the public interest. Such waivers must be reported to Congress within 7 days. If provisions related to minority contracting are waived, the Secretary must develop alternate procedures to ensure the inclusion of minority contractors. Allows FDIC to be selected as an asset manager for residential mortgage loans and mortgage-backed securities.
Section 108. Requires the Secretary to issue regulations or guidelines to address and manage conflicts of interest in connection with the exercise of authorities provided under the Act.
Section 109. Requires the Secretary that for mortgages and mortgage-backed securities acquired through TARP to implement a plan to mitigate foreclosures. Allows the Secretary to use loan guarantees and credit enhancements to facilitate loan modifications and avoid foreclosures. Requires the Secretary to coordinate with other Federal agencies to modify and restructure loans considering net present value to the taxpayer.
Section 110. Requires the Federal property manager that holds, owns or controls mortgages and mortgage backed securities, and other assets secured by real estate to implement plans to maximize assistance to homeowners, and minimize foreclosures. Requires implementation no later than 60 days from date of enactment of the Act. Requires reporting to Congress 60 days after enactment of the Act and every 30days thereafter with details on loan modifications and foreclosures.
Section 111. Requires the Secretary issue executive compensation and corporate governance standards for those financial institutions in which the Secretary makes direct purchases of troubled assets. Such standards include limiting incentives, and prohibiting golden parachutes. If the Secretary buys purchases assets from an institution through an auction, and the purchase exceeds more than $300 million in assets, the Secretary must prohibit any new employment contract with a senior executive officer that provides a golden parachute. Requires the Secretary to provide guidelines within 2 months from the date of enactment of the Act.
Section 112. Requires the Secretary to coordinate with foreign financial authorities and central banks to establish programs similar to TARP.
Section 113. Requires the Secretary to minimize negative impact to taxpayers by holding assets to maturity and maximizing return on the assets for taxpayers and the Federal Government. Requires the Secretary to encourage the private sector to participate in the purchases of troubled assets. Requires the Secretary to use market mechanisms, such as auctions or reverse auctions, to maximize efficiency of taxpayer resources. Provides requirements and conditions for the Secretary’s authority on purchase of warrants and debt instruments.
Section 114. Requires the Secretary to make publicly available in electronic form a description, amounts, and pricing of assets acquired under the Act within 2 business days of purchase, trade or disposition.
Section 115. Provides the Secretary’s limitations to use the $700 million authorized under the Act. Authorizes the Secretary to use US$250 billion outstanding at any one time effective upon the date of enactment of the Act. Upon written certification of need by the President to Congress, an additional US$100 billion will be available. The remaining US$350 billion will be available unless within 15 calendar days of the President’s submission, Congress enacts a joint resolution of disapproval. The Secretary’s authority to use the remaining US$350 billion will be effective upon the expiration of the 15 day period.
Section 116. Requires the Comptroller General to commence ongoing oversight of TARP’s activities and performance, its agents and representatives, including vehicles established by the Secretary under the Act. Requires the Comptroller General to report to Congress once every 60 days. Requires TARP to establish and maintain adequate internal controls that provide assurance of the effectiveness and efficacy of operations, use of resources, reliability on financial reporting, and compliance with applicable laws and regulations.
Section 117. Requires the Comptroller General to undertake a study to determine the extent to which leverage and sudden deleveraging of financial institutions was a factor behind the current financial crisis.
Section 118. Provides authorization and appropriation of funds consistent with Section 115.
Section 119. Provides standards for judicial review, including injunctive and similar relief, to ensure that the actions of the Secretary are not arbitrary, capricious, an abuse of discretion, or not in accordance with law.
Section 120. Provides the termination date of the Secretary authorities under Act to establish and purchase and guarantee troubled assets terminate on December 31, 2009. Authorizes a two-year extension of such authorities if the Secretary submits a specified certification to Congress.
Section 121. Establishes the Office of the Special Inspector General for TARP to conduct, supervise, and coordinate audits and investigations of the purchase, management, and sale of assets by the Secretary under the Act. Requires the Special Inspector General to submit a report to Congress summarizing its activities no later than 60 days after its confirmation and every quarter thereafter. Authorizes $50 million from the amount made available to the Secretary is made available to the Special Inspector General.
Section 122. Increases the statutory limit on the public debt to $11.315 trillion.
Section 123. Establishes the manner in which the legislation will be treated for budgetary purposes under the Federal Credit Reform Act of 1990.
Section 124. Strengthens the Hope for Homeowners program to increase eligibility and improve the tools available to prevent foreclosures.
Section 125. Establishes the Congressional Oversight Panel to review and report to Congress on the status of the financial markets and regulatory system. Requires the Oversight Panel to submit a special report on regulatory reform to Congress no later than January 20, 2009.
Section 126. Amends the Federal Deposit Insurance Act to prohibit false advertising, misuse of Federal Deposit Insurance Corporation (FDIC) names, and misrepresentation of insured status.
Section 127. Requires that any Federal financial regulatory agencies to cooperate with the Federal Bureau of Investigation (FBI) and other law enforcement agencies investigating fraud, misrepresentation, and malfeasance regarding development, advertising, and sale of financial products.
Section 128. Accelerates the effective date of amendments to the Financial Services Regulatory Relief Act of 2006 from October 1, 2011 to October 1, 2008, authorizing the Federal Reserve to pay interest on reserves.
Section 129 Requires the Board to submit a report to Congress within 7 days after the use of its authority on emergency lender under the Federal Reserve Act. Requires the Board to provide updates to Congress once every 60 days.
Section 130. Provides technical corrections.
Section 131. Requires the Secretary to reimburse the Exchange Stabilization Fund from funds authorized under the Act. Prohibits any use of the Exchange Stabilization Fund to establish any future guaranty programs.
Section 132. Authorizes the Securities and Exchange Commission (SEC) to suspend application of Statement Number 157 (about mark-to-market accounting) of the Financial Accounting Standards Board.
Section 133. Requires the SEC in consultation with the Board and the Secretary conduct a study on market-to-market accounting standards as provided on the Financial Accounting Standards Board, to study. Requires the SEC to submit a report to Congress with the findings, including any administrative and legislative recommendations within 90 days of the date of the enactment of the Act.
Section 134. Requires the Director of the Office of Management and Budget, in consultation with the Director of the Congressional Budget Office, submit a report to Congress in 5 years. Requires the President submits to the Congress a legislative proposal to recoup from the financial industry any projected losses to the taxpayer.
Section 135. Clarifies that nothing in the Act limits the authority of the Secretary or the Board under any other provision of law.
Section 136 Temporarily increases the amount of deposit coverage and share insurance coverage from $100,000 to $250,000, until December 31, 2009.
TITLE II. BUDGET-RELATED PROVISIONS
Section 201. Requires all information used by the Secretary in connection with activities authorized under this Act (including the records to which the Comptroller General is entitled) to be made available, upon request, to the Congressional Budget Office and the Joint Committee on Taxation to assist in their conducting oversight, monitoring, and analysis of such authorized activities.
Section 202 Requires the Office of Management and Budget report to the President and Congress within 60 days of the first exercise of authority under the TARP, but no later than December 31, 2008, and semiannually thereafter: an estimate of the cost and guarantees of troubled assets and their guarantees, and the information used to calculate such estimate; and a detailed analysis of how the estimate has changed from the previous report. Requires the second and any ensuing reports to explain the differences between the current and previous estimates. Requires the Congressional Budget Office to assess and report to Congress within 45 days of receipt of each report from the Office of Management and Budget an assessment of such report, including: the cost of the troubled assets and their guarantees, the information and valuation methods used to calculate such cost, and the impact on the deficit and the debt. Authorizes appropriations.
Section 203 Requires the President's annual budget to Congress to include as supplementary materials an analysis of the budgetary effects of the actions or plans of the Secretary, including an estimate on the current value of assets purchased, sold and guaranteed under the authority of the Emergency Economic Stabilization Act. Requires the Director of Office of Management and Budget consult at least once annually with the Committee on the Budget of the House of Representatives, the Committee on the Budget of the Senate, and the Director of the Congressional Budget Office.
Section 204. Designates all provisions of this Act as an emergency requirement necessary to meet emergency needs. Prohibits rescissions of any amounts provided in it from being counted for budget enforcement purposes.
TITLE III. TAX PROVISIONS
Section 301. Provides for ordinary income or loss treatment of gain or loss from the sale or exchange of any applicable preferred stock by any applicable financial institution. Defines "applicable preferred stock" as preferred stock that was held by the applicable financial institution on September 6, 2008, or that was sold or exchanged on or after January 1, 2008, and before September 6, 2008. Defines "applicable financial institution" as banking, financial, or investment institution or a depository institution holding company. Allows the Secretary of the Treasury to apply ordinary gain or loss treatment to certain sales of preferred stock not held on September 6, 2008. Authorizes the Secretary to issue necessary regulations to carry out this section.
Section 302. Denies certain employers whose assets have been purchased under the TARP a tax deduction for the payment of compensation in excess of $500,000 to their executives or other highly compensated employees. Makes tax penalties for excess parachute payments applicable to employers who participate in TARP and their executives.
Section 303. Extends the current tax law on exclusion of income from the discharge of qualified principal residence indebtedness until January 1, 2013.
EESA
Section-by-Section Analysis
BILL H.R. 1424
DIVISION A - EMERGENCY ECONOMIC STABILIZATION
SECTION 1. SHORT TITLE AND TABLE OF CONTENTS
(a) SHORT TITLE. -“Emergency Economic Stabilization Act of 2008”
(b) TABLE OF CONTENTS.
SECTION 1. SHORT TITLE AND TABLE OF CONTENTS.
SECTION 2. PURPOSES
Provides authority and facilities that the Treasury Secretary can use to restore liquidity and stability to the U.S. financial system and to ensure that the authority is used in a way that protects home values, college funds, retirement accounts, and life savings, promotes job and economic growth and homeownership, maximize returns to taxpayers, and provides public accountability for its exercise of authority.
SECTION 3. DEFINITIONS
Contains definitions used under the Act for the following:
1. Appropriate Committees of Congress.
A) Committee on Banking, Housing and Urban Affairs, Committee on Finance, Committee on Budget, Committee on Appropriations of the Senate.
B) Committee on Financial Services, Committee on Ways and Means, Committee on the Budget, Committee on Appropriations of the House of Representatives.
2. Board: Board of Governors of the Federal Reserve System.
3. Congressional Support Agencies: Congressional Budget Office and Joint Committee on Taxation.
4. Corporation: Federal Deposit Insurance Corporation.
5. Financial Institution: Any institution, including, but not limited, to any bank, savings association, credit union, security broker or dealer, or insurance company, established and regulated under the laws of the United States or ay State, territory, or possession of the United States, the District of Columbia, Commonwealth of Puerto Rico, Commonwealth of Northern Mariana Islands, Guam, American Samoa, or the United States Virgin Islands and having significant operations in the United States, but excluding any central bank of, or institution owned by, a foreign government.
6. Fund: Troubled Assets Insurance Financing Fund.
7. Secretary: Secretary of the Treasury.
8. TARP: Troubled Asset Relief Program.
9. Troubled Assets:
A) Residential or commercial mortgages and any securities, obligations, or other instruments based on or related to such mortgages, in each case originated or issued on or before March 14, 2008; and
B) Any other financial instrument that the Secretary in consultation with the Chairman of the Board determines is necessary to promote financial market stability. Such determination must be in writing to the appropriate committees of Congress.
TITLE I - TROUBLED ASSETS RELIEF PROGRAM
SECTION 101. PURCHASES OF TROUBLED ASSETS.
(a) OFFICES; AUTHORITY.-
• Authorizes the Secretary to establish TARP to purchase and to make and fund commitments to purchase troubled assets from any financial institution on terms and conditions determined by the Secretary in accordance with the Act.
• Commencement of TARP should not be delayed by the establishment of policies, procedures and administrative requirements by the Secretary.
• Establishes an Office of Financial Stability within the Office of Domestic Finance of the Treasury Department to implement the TARP. Establishes an Assistant Secretary of the Treasury appointed by the President by and with the advice and consent of the Senate that will head the Office of Domestic Finance of the Treasury.
• Establishes clerical amendments
(b) CONSULTATION.-
• Requires the Secretary to consult with the Board, the Corporation, the Controller of the Currency, the Director of the Office of Thrift supervision and the Secretary of Housing and Urban Development.
(c) NECESSARY ACTIONS.-
• Requires the Treasury Secretary to take any necessary actions to carry out the purposes of the Act.
• Allows the Secretary to have direct hiring authority to appoint employees necessary to administer the Act and allows the Secretary to enter into contracts for services.
• Allows the Secretary to designate financial institutions as financial agents of the Federal Government to perform duties related to the Act.
• Allows the Secretary to establish vehicles which are authorized to purchase, hold, and sell troubled assets, and issue obligations providing the Secretary flexibility to manage the troubled assets.
• Authorizes the Secretary to issue regulations and other guidance to define terms or carryout the authorities or purposes of the Act.
(d) PROGRAM GUIDELINES.-
• Requires the Secretary to publish program guidelines before the earlier of the end of the 2 business days beginning on the date of the first purchase of troubled assets or the end of the 45 day period beginning on the date of the enactment of the Act. The guidelines will include:
(1) Mechanisms for purchasing troubled assets.
(2) Methods for pricing and valuing troubled assets.
(3) Procedures for selecting asset managers.
(4) Criteria for identifying troubled assets for purchase.
(e) PREVENTING UNJUST ENRICHMENT.-
• Requires the Secretary to take steps necessary to prevent unjust enrichment of participant financial institutions, including preventing the sale of troubled assets to the Secretary at a higher price than what the seller paid to purchase the asset.
SECTION 102. INSURANCE OF TROUBLED ASSETS.
(a) AUTHORITY.-
• If the Secretary establishes TARP, the Act requires the Secretary to establish a program to guarantee troubled assets of financial institutions originated or issued prior to March 14, 2008.
• Requires the Secretary to develop guarantees of troubled assets and the associated premiums for such guarantees.
• Requires the Secretary to determine and guarantee timely payment of principal of and interest on troubled assets without exceeding 100 percent of such payment upon request from a financial institution according to the purposes of the Act and on terms and conditions determined by the Secretary.
(b) REPORTS.-
• Requires the Secretary to report to Congress about the program no later than 90 days after enactment of the Act on program to guarantee troubled assets of financial institutions.
(c) PREMIUMS.-
• Requires the Secretary to collect premiums from any participating financial institutions as determined necessary by the Secretary for the purposes of the Act and to provide sufficient reserves.
• Allows the Secretary to vary rates based on credit risk associated with the trouble assets guaranteed.
• Requires the Secretary to publish methodology for setting premiums for a class of troubled assets and explanation of appropriateness of class of assets for participation in the program.
• Requires the Secretary to set premiums necessary to create sufficient reserves to meet anticipated claims and ensure taxpayer protection.
• Establishes adjustment to purchase authority limit of section 115.
(d) TROUBLED ASSETS INSURANCE FINANCING FUND.-
• Requires the Secretary to deposit fees collected into Troubled Assets Insurance Fund.
• Establishes a Troubled Assets Insurance Fund, which will consist of the premiums paid by participating institutions. Any balance is to be invested by the Secretary of United States Treasury securities, or be kept in cash on hand or on deposit.
• Requires the Secretary make payments from Fund to fulfill obligations of guarantees provided to financial institutions.
SECTION 103. CONSIDERATIONS.
• In using authority under this Act, the Treasury Secretary is required to take a number of considerations into account, including protecting the taxpayers’ interests, minimizing the impact on the national debt, providing stability and preventing disruption to financial markets to limit impact on economy and protect American jobs, savings, and retirement security, helping families keep their homes and stabilize communities, ensuring participation by all financial institutions regardless of size, geography, form of organization, number of assets, utility of purchasing other real estate owned and instruments backed by mortgages on multifamily properties.
• Requires the Secretary to determine the long-term viability of an institution in determining whether the purchase is the most efficient use of funds under the Act.
• Requires the Secretary to provide financial assistance to financial institutions serving low and moderate income populations that have assets less than $1,000,000 well capitalized as of June 30, 2008 and which stock will drop one or more capital levels as a result of the devaluation of the preferred government-sponsored enterprises.
• Requires the Secretary to ensure stability for U.S. counties and cities which suffered significant increased costs or losses.
• Requires the Secretary to protect the retirement security of Americans by purchasing troubled assets held on behalf of an eligible retirement plan described in the Act.
SECTION 104. FINANCIAL STABILITY OVERSIGHT BOARD.
(a) ESTABLISHMENT.-
Establishes the Financial Stability Oversight Board to review and make recommendations regarding the exercise of authority under this Act. In addition, it must ensure that the policies implemented by the Secretary protect taxpayers, are in the economic interests of the United States, and are in accordance with this Act.
(b) MEMBERSHIP.-
The Financial Stability Oversight Board is comprised of the Chairman of the Board of Governors of the Federal Reserve System, the Secretary of the Treasury, the Director of the Federal Home Finance Agency, the Chairman of the Securities and Exchange Commission and the Secretary of the Department of Housing and Urban Development.
(c) CHAIRPERSON.-
Mandates that the Chairperson is elected by members of the Financial Stability Oversight Board other than the Secretary.
(d) MEETINGS.-
Requires meeting by Financial Stability Oversight Board 2 weeks after Secretary’s first exercise of purchase authority and monthly thereafter.
(e) ADDITIONAL AUTHORITIES.-
Requires Financial Stability Oversight Board to ensure that policies implemented are in accordance with this Act, in the economic interests of the United States, and protect taxpayers.
(f) CREDIT REVIEW COMMITTEE.-
Allows the Financial Stability Oversight Board to appoint a credit review committee to evaluate purchase authority and assets purchased under such authority.
(g) REPORTS.-
Requires Board to report to Congress and Congressional Oversight Panel at least quarterly.
(h) TERMINATION.-
Establishes termination of Financial Stability Oversight Board and its authority on the expiration of the15-day period of the date that the last troubled asset is sold or transferred out of ownership of the Federal Government, or the date of the expiration of the last insurance contract.
SECTION 105. REPORTS.
(a) IN GENERAL.-
Within 60 days of the first exercise of authority under this Act and every month thereafter, the Secretary is required to report to Congress its activities under TARP, including an overview of the Secretary’s actions, the obligation and expenditure of funds provided for administrative expenses during the period, and a detailed financial statement about the Secretary’s use of its authority under the Act.
(b) TRANCHE REPORTS TO CONGRESS.-
For every $50 billion in assets purchased, the Secretary is required to submit a written report to Congress with a detailed description of all transactions, a description of the pricing mechanisms used, and justifications for the financial terms of such transactions, a description of the impact of the exercise of authority, a description of remaining challenges in the financial system, and an estimate of additional actions necessary to address such challenges.
(c) REGULATORY MODERNIZATION REPORT.-
The Secretary is required to submit a written report to Congress prior to April 30, 2009, on the current state of the financial markets, the effectiveness of the financial regulatory system, and to provide any recommendations for improvement.
(d) SHARING OF INFORMATION.-
Any report in this section is to be submitted to the Congressional Oversight Panel.
(e) SUNSET.-
Establishes reporting requirements termination for this section end on the date that the last troubled asset is sold or transferred out of ownership of the Federal Government, or the date of the expiration of the last insurance contract.
SECTION 106. RIGHTS; MANAGEMENT; SALE OF TROUBLED ASSETS; REVENUES AND SALE PROCEEDS.
(a) EXERCISE OF RIGHTS. - Establishes the right of the Secretary to exercise authorities under this Act at any time.
(b) MANAGEMENT OF TROUBLED ASSETS. - Provides the Secretary with the authority to manage troubled assets, including the ability to determine the terms and conditions associated with the disposition of troubled assets.
(c) SALE OF TROUBLE ASSETS. - Provides the Secretary with the authority to sell or enter into financial transactions in regard to any troubled asset under the Act.
(d) TRANSFER TO TREASURY. - Requires that proceeds from the sale of troubled assets to be used to pay down the national debt.
(e) APPLICATION OF SUNSET TO TROUBLED ASSETS.- Establishes that the authority of the Secretary to hold, purchase, or fund the purchase of a troubled asset under a commitment entered into before the December 21, 2009 is not subject to the provisions of section 120 (expiration of the Act on December 21, 2009).
SECTION 107. CONTRACTING PROCEDURES.
(a) STREAMLINED PROCESS. - Allows the Secretary to waive provisions of the Federal Acquisition Regulation where compelling circumstances make compliance contrary to the public interest. Such waivers must be reported to Congress within 7 days.
(b) ADDITIONAL CONTRACTING REQUIREMENTS.- If provisions related to minority contracting are waived, the Secretary must develop alternate procedures to ensure the inclusion of minority contractors.
(c) ELIGIBILITY OF FDIC. - Allows the FDIC to be selected as an asset manager for residential mortgage loans and mortgage-backed securities, and to be reimbursed by the services provided.
SECTION 108. CONFLICTS OF INTEREST.
(a) STANDARDS REQUIRED. - The Secretary is required to issue regulations or guidelines to manage or prohibit conflicts of interest in the administration of the program, including conflicts arising in selection of contractors, advisors, and asset managers, the purchase of troubled assets, management of troubled assets, post-employment restrictions.
(b) TIMING.-Requires that regulations or guidelines are issued soon after enactment of this Act.
SECTION 109. FORECLOSURE MITIGATION EFFORTS.
(a) RESIDENTIAL MORTGAGE LOAN SERVICING STANDARDS. - For mortgages and mortgage-backed securities acquired through TARP, the Secretary must implement a plan to mitigate foreclosures and to encourage servicers of mortgages to modify loans through Hope for Homeowners and other programs. Allows the Secretary to use loan guarantees and credit enhancement to facilitate loan modifications and avoid foreclosures.
(b) COORDINATION.- Requires the Secretary to coordinate with the Corporation, Board, the Federal Housing Finance Agency, the Secretary of Housing and Urban Development and other Federal government entities that hold troubled assets in order to identify opportunities to modify and restructure loans. If permissible, permit bona fide tenants to remain under terms of lease. For mortgages on residential rental properties, the plan must protect Federal, State and local rental subsidies and protections.
(c) CONSENT TO REASONABLE LOAN MODIFICATION.- Requires the Secretary to consent, if appropriate and considering net present value to taxpayers, to any request arising under existing investment contracts to loss mitigation measures, including term extensions, rate reductions, principal write downs, increases in loans with trust or other structures to be modified or removal of limitation of modifications.
SECTION 110. ASSISTANCE TO HOMEOWNERS.
(a) DEFINITIONS. - For this section:
Federal Property Manager means Federal Finance Agency (as conservator of the Federal national Mortgage Association and the Federal Home Loan Mortgage Corporation), the Corporation (residential mortgage loans and mortgage backed securities held by depository institutions according to Federal Deposit Insurance Act), and the Board (any mortgage or mortgage-backed securities held, owned, or controlled by or on behalf of a Federal reserve bank, or as collateral for an advance or discount not in default).
Consumer: (103 Truth in Lending Act (15 U.S. C. 1602): the term consumer used with reference to a credit transaction, characterizes the transaction as one in which the party to whom credit is offered or extended is a natural person, and the money, property, or services which are the subject of the transaction are primarily for personal, family, or household purposes.
Insured Depository Institution: (3 Federal Deposit Insurance Act (12 U.S.C. 1813) includes any uninsured branch or agency of a foreign bank or a commercial lending company owned or controlled by a foreign bank for purposes.
Servicer: 6(i)(2) of Real Estate Settlement Procedures Act of 1974 (12 U.S.C. 2605(i)(2)):
Person responsible for servicing of a loan (including the person who makes or holds a loan if such person also services the loan). The term does not include—
(A) the Federal Deposit Insurance Corporation or the Resolution Trust Corporation, in connection with assets acquired, assigned, sold, or transferred pursuant to section 13(c) of the Federal Deposit Insurance Act or as receiver or conservator of an insured depository institution; and
(B) the Government National Mortgage Association, the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation, the Resolution Trust Corporation, or the Federal Deposit Insurance Corporation, in any case in which the assignment, sale, or transfer of the servicing of the mortgage loan is preceded by—
(i) termination of the contract for servicing the loan for cause;
(ii) commencement of proceedings for bankruptcy of the servicer; or
(iii) commencement of proceedings by the Federal Deposit Insurance Corporation or the Resolution Trust Corporation for conservatorship or receivership of the servicer (or an entity by which the servicer is owned or controlled).
(b) HOMEOWNER ASSISTANCE BY AGENCIES.-
• Requires Federal property manager that holds, owns or controls mortgages and mortgage-backed securities, and other assets secured by real estate to implement plans to maximize assistance to homeowners, take advantage of HOPE for Homeowners Program, and minimize foreclosures.
• For residential mortgage loans, modifications include reduction in interest rates, reduction of loan principal and other similar modifications.
• For mortgages on residential rental properties, modifications include: continuation of existing Federal, State, and local rental subsidies and protections, and those that consider the need for operating funds to maintain decent and safe conditions of the property.
• Requires that implementation of the plan begins no later than 60 days after enactment of the Act.
• Requires each Federal property manager report to Congress beginning 60 days after enactment of the Act and every 30 days thereafter with details on loan modifications and foreclosures.
• Requires Federal property managers to consult with each other and utilize consistent approaches to comply with requirements in this section.
(c) ACTIONS WITH RESPECT TO SERVICERS.- Requires Federal property manager to encourage implementation of loan modifications by loan servicers and assist implementation of modifications in those security-backed obligations in which the Federal property manager is not an owner, but holds an interest.
(d) LIMITATION.- Requirements in this section do not supersede any other duty imposed on Federal property managers under other applicable laws.
SECTION 111. EXECUTIVE COMPENSATION AND CORPORATE GOVERNANCE.
(a) APPLICABILITY. - Any financial institution that sells troubled assets to the Secretary under the Act is subject to executive compensation requirements of IRS Code 1986 subsections (b) and (c) as applicable.
(b) DIRECT PURCHASES. - Requires that if the Secretary determines to make direct purchases of troubled assets from a financial institution where no bidding process or market prices are available, and the Secretary receives a meaningful equity or debt position in the institution, the Secretary will set executive compensation and corporate governance standards for the institution. The standards will only apply while the Secretary holds a debt or equity position in the institutions. The standards include:
• limits on compensation that exclude incentives for senior executive officers to take unnecessary and excessive risks that threaten the value of the financial institution during the period that the Secretary holds an equity or debt in the financial institution to prevent unnecessary and excessive risk-taking during the period the Secretary holds equity or debt position in the financial institution;
• provisions for the recovery by the financial institution of any bonus or incentive compensation paid to a senior executive officer based on statements of earnings, gains, or other criteria that are later proven to be materially inaccurate; and
• a prohibition on golden parachute payments by the financial institution to senior executive officers during the period that the Secretary holds and equity or debt position in the financial institution.
• Defines "senior executive officer", as an individual who is one of the top 5 highly paid executives of a public company, whose compensation is required to be disclosed according to the Securities Exchange Act of 1934, and non-public company counterparts.
(c) AUCTION PURCHASES.- Provides that if the Secretary purchases an institution’s troubled assets through an auction and those purchases exceed $300 million (including direct purchases), the Secretary must prohibit any new employment contract with a senior executive officer that provides a golden parachute in the event of involuntary termination, bankruptcy filing, insolvency, or receivership. Requires Secretary to issue guidance on this paragraph o later than 2 months after the enactment of the Act, the guidance will be effective upon issuance.
(d) SUNSET. - These provisions only apply to arrangements entered into while the TARP authorities are in effect.
SECTION 112. COORDINATION WITH FOREIGN AUTHORITIES AND CENTRAL BANKS.
• Requires the Secretary to coordinate with foreign financial authorities and central banks to establish programs similar to TARP.
• Provides that if foreign financial authorities or banks hold troubled assets as a result of extending financing to financial institutions that have failed or defaulted on the financing, those troubled assets qualify for purchase under TARP.
SECTION 113. MINIMIZATION OF LONG- TERM COSTS AND MAXIMIZATION OF BENEFITS FOR TAXPAYERS.
(a) LONG-TERM COSTS AND BENEFITS.-
• Requires the Secretary to minimize long-term negative impact to taxpayers, considering direct outlays, potential long-term returns, and overall economic benefits, including economic benefits as a result of improvements in economic activity and availability of credit, impact on individual savings and pensions, and reductions in losses to the Federal government.
• Requires Secretary to minimize negative impact to taxpayers by holding assets to maturity or for resale when the Secretary determines that market is optimal to maximizing return on the assets for taxpayers.
• Requires Secretary to determine price to sell assets, based on available financial analysis that will maximize return on investment for the Federal Government.
• Requires the Secretary to encourage the private sector to participate in purchases of troubled assets.
(b) USE OF MARKET MECHANISMS.-
• Requires the Secretary to make purchases at the lowest price that the Secretary determines to be consistent with the Act’s purposes.
• Requires the Secretary to use market mechanisms, such as auctions or reverse auctions, to
maximize efficiency of taxpayer resources.
(c) DIRECT PURCHASES. - Allows the Secretary to make direct purchases of assets if the Secretary determines that using market mechanisms is not appropriate. Requires that the Secretary pursue additional measures to ensure that prices paid for assets are reasonable and reflect underlying value of the asset.
(d) CONDITIONS ON PURCHASE AUTHORITY FOR WARRANTS AND DEBT INSTRUMENTS.-
• Requires that the Secretary does not purchase or make any commitment to purchase any troubled asset under the authority of the Act, unless the Secretary receives warrants from financial institutions which are traded on a national securities exchange giving the Secretary the right to receive non-voting common or preferred stock in the institution, voting stock for which as determined appropriate by the Secretary there is no exercise of voting power.
• For institutions not traded on a national securities exchange, warrants for common or preferred stock, or senior debt instrument for financial institutions that issued the warrant but are no longer listed or traded on a national securities exchange or securities association.
• Establishes that the terms and conditions of any warrant or senior debt instrument must meet the following requirements:
• Purposes: terms and conditions must be designed to provide participation by the Secretary for the benefit of the taxpayers in equity appreciation for warrant or equity securities, and reasonable interest for debt instruments, and provide additional protection for taxpayers against losses from sale of assets by the Secretary under the Act and the administrative expenses of the TARP.
• Authority to Sell, Exercise, or Surrender: the Secretary will exercise these rights on warrants or senior debt instruments received base on the conditions established in this section.
• Conversion: Requires that warrants received by the Secretary have option to convert to senior debt or contain protections for the value of the warrant as determined by the Secretary in the event that the issuing financial institution is no longer a listed trader on a national securities exchange or securities association.
• Protections: Requires that any warrant representing securities received by the Secretary contain anti-dilution provisions as employed in capital market transactions as determined by the Secretary to protect the value of the securities from market transactions such as stock splits, stock distributions, dividends, mergers and other forms of reorganization or recapitalization.
• Exercise Price: The exercise price for the warrants will be set by the Secretary.
• Sufficiency: Requires that a financial institutions guarantee to the Secretary sufficient shares of nonvoting stock available to fulfill obligations. If the financial institution has no sufficient authorized shares, the Secretary may accept equivalent senior debt note in an amount and on terms that compensate the Secretary with equivalent value if sufficient shareholder vote to authorize necessary additional shares cannot be obtained.
• Requires the Secretary to establish de minimis exceptions to requirements based on cumulative transactions of troubled assets purchased from any one financial institution during the duration of the program at not more than $100,000.
• Requires the Secretary to establish an exception to requirements and alternative requirements for any participating financial institution that is legally prohibited from issuing securities and debt instruments.
SECTION 114. MARKET TRANSPARENCY.
(a) PRICING.- Requires the Secretary to make publicly available in electronic form a description, amounts, and pricing of assets acquired under the Act within 2 business days of purchase, trade or disposition.
(b) DISCLOSURE.- Requires the Secretary to determine for each type of financial institutions that sell troubled assets to the Secretary, whether the public disclosure (on off-balance sheet transactions, derivatives instruments, contingent liabilities, and other sources of potential exposure) required for such financial institutions is adequate to provide the public with enough information on the true financial position of the institutions. If the disclosure is not adequate, it requires that the Secretary make recommendations for additional disclosure requirements to relevant regulators.
SECTION 115. GRADUATED AUTHORIZATION TO PURCHASE.
(a) AUTHORITY.- Establishes the Secretary’s limitations to purchase troubled assets under the Act:
• The Secretary’s authority is limited to $250,000,000,000 outstanding at any one time effective upon the date of enactment of the Act.
• Effective upon a written Presidential certification submitted to Congress that the Secretary needs to exercise authority; such authority will be limited to $350,000,000,000 outstanding at any one time.
• Anytime after Presidential certification to Congress, if the President submits a written report to Congress detailing the Secretary’s plan to exercise authority, such authority will be limited to $700,000,000,000 outstanding at any one time unless within 15 calendar days of submission Congress enacts a joint resolution of disapproval. Such authority will be effective upon the expiration of the 15 day period.
(b) AGGREGATION OF PURCHASE PRICES. - Establishes that for purposes of the dollar amount limitations on the Secretary’s authority under the Act, the amount of troubled assets purchased outstanding at any one time shall be determined by aggregating the purchase prices of all troubled assets held.
(c) JOINT RESOLUTION OF DISAPPROVAL.-
• Establishes that the Secretary may not exercise any authority under the Act for any amount in excess of $350,000,000,000 previously obligated, if a joint resolution disapproving the plan of the Secretary with respect to the additional amount is enacted into law within 15 calendar days after the date of Congress’ receipt of the President’s report detailing the Secretary’s plan to exercise authority.
• Defines joint resolution for purposes of this section as a joint resolution introduced no longer than 3 calendar days after the date of receipt by Congress of the President’s report detailing the Secretary’s plan, which does not have a preamble, which has the title “Joint resolution relating to the disapproval of obligations under the emergency Economic Stabilization Act of 2008”, and which resolving clause is specified as “That Congress disapproves the obligation of any amount exceeding the amounts obligated as described in paragraphs (1) and (2) of section 115(a) of the Emergency Economic Stabilization Act of 2008”.
(d) FAST TRACK CONSIDERATION IN THE HOUSE OF REPRESENTATIVES.-
• Establishes that the House must convene no later than the second calendar day after receipt of the Presidential report of the Secretary’s plan. If a joint resolution is referred to any committee of the House, it must report it to the House no later than 5 calendar days after receipt of the Presidential report. Failure to report the joint resolution on the specified period will result in discharge from further consideration; the joint resolution must then be referred to the appropriate calendar. No later than the sixth day after receipt by Congress of the Presidential report of the Secretary’s plan and after each authorized committee has reported to the House, the House shall proceed to consider the joint resolution. All points of order against the motion are waived. The motion is not debatable.
• Establishes that the joint resolution is considered as read, and all points of order against its consideration are waived. A motion to reconsider the vote on passage of the joint resolution shall not be in order.
(e) FAST TRACK CONSIDERATION IN SENATE.-
• Establishes that the Senate must convene no later than the second calendar day after notification by the leader of the Senate of receipt of the President’s report of the Secretary’s plan. The joint resolution must be placed immediately on the calendar upon introduction to the Senate.
• Establishes that it shall be in order to proceed to the consideration of the joint resolution at any time during the beginning of the 4th day and ending on the 6th day after the date Congress receives the President’s report of the Secretary’s plan. All points of order against the joint resolution and consideration of the joint resolution are waived. The motion to proceed is not debatable and it is not subject to a motion to postpone. A motion to reconsider the vote shall not be in order.
• Establishes that debate on the joint resolution and on all related debatable motions and appeals will be limited to 10 hours divided equally between the majority and minority leaders, and that an amendment to, motion to postpone, motion to proceed to consideration of other business, motion to recommit the joint resolution is not in order.
• Establishes that vote on passage shall occur immediately following the conclusion of the debate on a joint resolution, and that appeals from the decisions of the Chair on application of the rules of the Senate to the procedure on a joint resolution shall be decided without debate.
(f) RULES RELATING TO SENATE AND HOUSE OF REPRESENTATIVES.-
• Establishes the procedure that shall apply if before the passage of a joint resolution by one House, a joint resolution is received from the other House:
1. Coordination with Action by Other House: The joint resolution of the other House won’t be referred to a committee. The House receiving the resolution must proceed with the joint resolution as if no joint resolution had been received, but the vote on passage must be on the joint resolution of the other House.
2. Treatment of Joint Resolution of Other House: If one House fails to introduce or consider a joint resolution, the joint resolution of the other House must be entitled to expedited floor procedures.
3. Treatment of Companion Measures: Establishes that the companion measure from the House of Representatives shall not be debatable if the Senate receives the companion measure after passage of the joint resolution in the Senate.
4. Consideration After Passage.-
• Establishes that if Congress passes a joint resolution, the period beginning on the date the President is presented with the joint resolution and ending on the date the President takes action on the joint resolution will be discounted when computing the 15-calendar day period in which the Secretary’s authority will become effective.
• Establishes that if the President vetoes the joint resolution, the period beginning on the date the President vetoes the joint resolution and ending on the date Congress receives the veto message shall be disregarded in computing the 15-day calendar period in which the Secretary’s authority will become effective.
• Establishes that a veto message debate on in the Senate shall be 1 hour divided equally between the majority and minority leaders.
5. Rules of House of Representatives and Senate. – Establishes that the Joint Resolution of Disapproval, the Fast Track Consideration in the House of Representatives, and the Fast Track Consideration in Senate as well as this subsection are enacted by Congress as an exercise of the rulemaking power of the Senate and the House of Representatives respectively and with full recognition of the constitutional right of either House to change the rules, relating to the procedure of that House at any time, in the same manner and to the same extent as in the case of any other rule of that House.
SECTION 116. OVERSIGHT AND AUDITS.
(a) COMPTROLLER GENERAL OVERSIGHT.-
• Requires that upon establishment of TARP the Comptroller General of the United States begins ongoing oversight of TARP’s activities and performance, its agents and representatives, and vehicles established by the Secretary under the Act, including: performance of TARP on foreclosure mitigation, cost reduction, whether TARP has provided stability or prevented disruption to the financial markets or the banking system, and whether TARP has protected taxpayers; financial condition and internal controls of TARP, its representatives and agents; TARP’s transactions and commitments, terms of any future commitments to purchase assets; characteristics and disposition of acquired assets; efficiency of TARP’s operations in use of funds; compliance with all applicable laws and regulations by TARP, its agents and representatives; TARP’s efforts to prevent, identify, and minimize conflicts of interest involving TARP’s representatives; efficacy of contracting procedures including TARP’s efforts in evaluating proposals for inclusion and contracting of minorities, women, and minority- and women owned businesses, reporting total amount of fees paid and value delivered by TARP to all of its agents and representatives, and amounts paid or delivered to minority and women-owned businesses.
• Requires that the Secretary provides the Comptroller General with space and facilities in the Department of the Treasury necessary to facilitate oversight of TARP until termination of the TARP.
• Establishes that the Comptroller General has access upon request to any information, data, schedules, books, accounts, financial records, reports, files, electronic communications, or other papers, things or property belonging to or in use by the TARP, to any vehicles established by the Secretary under the Act, to the officers, directors, employees, independent public accountants, financial advisors, and other agents and representatives of the TARP; facilities for verifying transactions; the Comptroller General can make and retain copies of such books, accounts, and other records.
• Requires that the Treasure reimburse the Government Accountability Office for the full cost of any oversight activities as billed by the Comptroller General of the United States.
• Requires the Comptroller General to submit reports once every 60 days to the appropriate committees of Congress, and the Special Inspector General for the TARP. The Comptroller can also submit special reports according to the findings of its oversight activities.
(b) COMPTROLLER GENERAL AUDITS.-
• Requires that TARP prepares and issue, to the appropriate committees of Congress and the public, annual audited financial statements and that the Comptroller General audit such statements. Establishes that the Treasury must reimburse the Government Accountability Office for the full cost of such audit.
• Establishes that the Comptroller General can audit the programs, activities, receipts, expenditures and financial transactions of the TARP, the activities of any agents and representatives on behalf of the TARP, and the vehicles established by the Secretary under the Act.
• Requires that the TARP take action to address deficiencies identified by the Comptroller General or other auditor engaged by the TARP, or certifies to the appropriate committees of Congress that no action is necessary or appropriate.
(c) INTERNAL CONTROL.-
• Requires the TARP to establish and maintain an effective system of internal control that provides assurance of the effectiveness and efficacy of operations, use of resources of the TARP, the reliability of financial reporting and financial statements, and compliance with applicable laws and regulations.
• Requires the TARP to state, in conjunction with each annual financial statement, the responsibility of management for establishing and maintaining adequate internal control of financial reporting and state its assessment of effectiveness of internal control as of the end of the most recent year covered.
(d) SHARING OF INFORMATION. - Requires that any report or audit required under this section is also submitted to the Congressional Oversight Panel.
(e) TERMINATION.- Establishes that any oversight, reporting or audit requirement terminates on the later of the date that the last troubled assets acquired by the Secretary has been sold or transferred out of ownership or control of the Federal Government, or the date of expiration of the last insurance contract.
SECTION 117. STUDY AND REPORT ON MARGIN AUTHORITY.
(a) STUDY. - Requires the Comptroller General to undertake a study to determine the extent to which leverage and sudden deleveraging of financial institutions was factor behind the current financial crisis.
(b) CONTENT.- Requires that the study includes: an analysis of the roles and responsibilities of the Board, the Securities and Exchange Commission, the Secretary, and other Federal banking agencies with respect to monitoring leverage and acting to curtail excessive leveraging; an analysis of the authority of the Board to regulate leverage and process used by the Board to decide whether or not to use its authority; and analysis of any usage of margin authority by the Board; and recommendations for the Board and appropriate committees of Congress on the existing authority of the Board.
(c) REPORT. - Requires the Comptroller General to submit the report on the study to the Committee on Banking, Housing, and Urban Affairs of the Senate and the Committee on Financial Services of the House of Representatives no later than June 1, 2009.
(d) SHARING OF INFORMATION. - Requires that any reports submitted under this section also be submitted to the Congressional Oversight Panel.
SECTION 118. FUNDING.
Establishes that the Secretary is authorized to use the proceeds of the sale of any securities issued according to chapter 31 of title 31 of the United States Code for the costs of administering the authorities granted under the Act (section 115), and that such securities are extended to include the actions authorized by the Act, including administrative expenses. Establishes that any funds expended or obligated by the Secretary for actions authorized under the Act is deemed appropriated at the time of such expenditure or obligation.
SECTION 119. JUDICIAL REVIEW AND RELATED MATTERS.
(a) JUDICIAL REVIEW.-
• Establishes that the actions by the Secretary pursuant to the authority of the Act are subject to chapter 7 of title 5, United States Code, such final actions shall be held unlawful and set aside if found to be arbitrary, capricious, an abuse of discretion, or not in accordance with law.
• Establishes that no injunction or other form of equitable relief can be issued against the Secretary for actions under the Act, other than to remedy a violation of the Constitution
• Requires that the court consider and grant or deny any request for a temporary restraining order against the Secretary for actions under the Act within 3 days of the date of the request.
• Establishes that any request for a preliminary injunction against the Secretary for actions under the Act be considered and granted or denied by the court on an expedited basis.
• Requires that the court consider, grant or deny any request for a permanent injunction against the Secretary for actions under the Act on an expedited basis, and if possible consolidate trial on the merits with any hearing on a request for a preliminary injunction.
• Establishes that no claims may be brought against the Secretary by any person that divests its assets in participation of the program, with the exception of the provisions in this section and if expressly provided in a written contract with the Secretary.
• Establishes that any injunction or other form of equitable relief issued against the Secretary for actions under the Act will be automatically stayed. The stay will be lifted unless the Secretary seeks a stay from a higher court within 3 calendar days after the issuance of the relief.
(b) RELATED MATTERS.-
• Establishes that residential mortgage loans purchased by the Secretary under the Act remain subject to all claims and defenses that would otherwise apply notwithstanding the exercise of authority by the Secretary under the Act.
• Requires that the Secretary’s exercise of any authority under the Act does not impair the claims or defenses that would otherwise apply to persons other than the Secretary. Establishes that a servicer of pooled residential mortgages has a duty to all investors and holders of beneficial interests in such investment to determine if the net value of payments on the loan, as modified, can be greater than the anticipated net recovery resulting from foreclosure. The servicer does not have such duty to individual or groups of investors. If the servicer agrees to or implements a modification or workout plan when taking reasonable loss mitigation actions, including partial payments, it will be deemed to be acting in the best interests of all such investors.
SECTION 120. TERMINATION OF AUTHORITY.
• Establishes that the authorities under the Act to establish the TARP and purchase and guarantee troubled assets terminate on December 31, 2009.
• Establishes that the Secretary may extend the authority provided under the Act to expire no later than 2 years from the date of enactment of the Act upon submission of written certification to Congress, which includes a justification for the necessity of the extension and the expected cost to taxpayers.
SECTION 121. SPECIAL INSPECTOR GENERAL FOR THE TROUBLED ASSET RELIEF PROGRAM.
(a) OFFICE OF INSPECTOR GENERAL. - Requires the establishment of the Office of the Special Inspector General for the TARP.
(b) APPOINTMENT OF INSPECTOR GENERAL; REMOVAL.- Establishes that the head of the Office of the Special Inspector General for the TARP is the Special Inspector General for TARP (“Special Inspector General”), appointed by the President by and with advice and consent of the Senate. Such appointment must be made on the basis of integrity and demonstrated ability in accounting, auditing, financial analysis, law, management analysis, public administration, or investigations. The nomination of the Special Inspector General should be made as soon as practicable after the establishment of any program under TARP. The Special Inspector General is removable from office according to the Inspector General Act of 1978. The Special Inspector General is not considered an employee who determines policies by the United States in the nationwide administration of Federal law. The annual rate of basic pay for the Special Inspector General is that of an Inspector General according to the Inspector General Act of 1978.
(c) DUTIES.-
• Establishes the duties of the Special Inspector General, which include, conducting, supervising, and coordinating audits and investigations of the purchase, management, and sale of assets by the Secretary under any program established by the Secretary under TARP, and the management by the Secretary of any program under TARP, by collecting and summarizing information on: a description of categories of troubled assets purchase or procured by the Secretary, a listing of troubled assets purchased in each category, an explanation of the Secretary’s reasons to purchase each troubled asset, a listing of each financial institution from which troubled assets were purchased from, a listing of and detailed biographical information on each person or entity hired to manage such troubled assets, a current estimate of the total amount of troubled assets purchased under TARP, the amount of troubled assets sold, profit and loss incurred on each sale or disposition of each troubled asset, a listing of the insurance contracts under TARP. Establishes that the Special Inspector General also has duties and responsibilities of inspectors general according to the Inspector General Act of 1978.
• Requires that, according to its duties, the Special Inspector General establish, maintain and oversee appropriate payments, procedures.
(d) POWERS AND AUTHORITIES. - Establishes that the Inspector General has the authorities provided and duties specified on Inspector General Act of 1978.
(e) PERSONNEL, FACILITIES, AND OTHER RESOURCES.-
• Establishes that the Special Inspector General can select, appoint, and employ any necessary officers and employees, employ services, enter into contracts and other arrangements for audits, studies, analysis, and other services with public agencies and with private persons, an make any payments necessary to carry out its duties.
• Requires that upon request by the Inspector General, any department, agency, or entity of the Federal Government provide information or assistance as long as it is practicable and not in contravention of any existing law. Establishes that the Special Inspector General report to the appropriate committees of Congress any instances in which it determines that information or assistance requested is unreasonable refused or not provided.
(f) REPORTS.-
• Requires that the Special Inspector General submits to the appropriate committees of Congress a report summarizing its activities no later than 60 days after its confirmation, and every quarter thereafter. The report shall cover the120-period ending on the date of the report, and shall include a detailed statement of all purchases, obligations, expenditures, and revenues associated with any program established by the Secretary and the reports from the Special Inspector General’s duties. Such reporting should not be construed to authorize public disclosure of information that is specifically prohibited from disclosure by any other provision of law, specifically protected by Executive order from disclosure in the interest of national defense or national security or in the conduct of national affairs, or a part of an ongoing criminal investigation.
• Requires that the Special Inspector General also submits any reports required under this section to the Congressional Oversight Panel.
(g) FUNDING. - Requires $50,000,000, from the amount made available to the Secretary under section 118, is available to the Special Inspector General to carry out its duties. Such amount is to remain available until expended.
(h) TERMINATION.- Establishes that the Office of the Special Inspector General terminates on the later of the date the last troubled asset acquired by the Secretary under TARP has been sold or transferred out of the ownership or control of the Federal Government, or the date of the expiration of the last insurance issues under TARP.
SECTION 122. INCREASE IN THE STATUTORY LIMIT ON THE PUBLIC DEBT.
Establishes an amendment to subsection (b) of section 3101 title 31 of the United States Code to reflect a raise on the public debt to $11.315 trillion.
SECTION 123. CREDIT REFORM.
(a) GENERAL. - Establishes that the costs of purchases of troubled assets, guarantees, and any cash flows associated with authorized activities of the TARP will be determined under the Federal Credit Reform Act of 1990, as applicable.
(b) COSTS.- Establishes that for the purposes of the Federal Credit Reform Act of 1990 (502(5)) (2 U.S.C. 661a(5)), the cost and guarantees of troubled assets will be calculated by adjusting the discount rate for market risks (according to 502(5)(E) (2 U.S.C 661a(5)(E)); the cost of a modification of a troubled asset or guarantee of a troubled asset will be the difference between the current estimate, as specified in this subsection, under the terms of the troubled asset or guarantee of the troubled asset, and the modified current estimate of the troubled asset or guarantee of a troubled asset.
SECTION 124. HOPE FOR HOMEOWNERS AMENDMENTS.
Provides language for specific amendments to Section 257 of the National Housing Act (12 U.S.C. 1715z23) to strengthen the Hope for Homeowners program, increase eligibility and improve the tools available to prevent foreclosures.
SECTION 125. CONGRESSIONAL OVERSIGHT PANEL.
(a) ESTABLISHMENT. - Requires the establishment of a Congressional Oversight Panel (“Oversight Panel”).
(b) DUTIES. - Requires the Oversight Panel to review the current state of the financial markets and the regulatory system and submit reports to Congress, including:
1) Regular Reports that include use of the Secretary’s authority, contracting and administration authority, impact of purchases made under the Act on financial markets and financial institutions, contribution to market transparency as a result of information availability on transactions under the program, effectiveness of foreclosure mitigation efforts and effectiveness of program with respect to minimizing long-term costs and maximizing benefits for taxpayers. Requires regular reports be submitted to Congress no later than 30 days after the first exercise by the Secretary of authority under TARP, and every 30 days thereafter.
2) Special Report on Regulatory Reform: requires the Oversight Panel to submit a special report on regulatory reform to Congress no later than January 20, 2009, which analyzes the current state of the regulatory system and its effectiveness at overseeing participants in the financial system and protecting consumers; provides recommendations for improvement, including whether any participants in the financial markets currently outside of the regulatory system should become subject to the regulatory system; provides underlying rationale for recommendation and indicates if there are any gaps in existing consumer protections.
(c) MEMBERSHIP.-
• Establishes that Oversight Panel consist of 5 members: 1 member appointment by the Speaker of the H.R., 1 member appointed by the minority of the H.R., 1 member appointed by the majority leader of the Senate, 1 member appointed by the minority leader of the Senate, and 1 member appointed by the Speaker of the H.R. and the majority leader of the Senate, prior consultation with the minority leader of the Senate and the minority leader of the H.R.
• Establishes payment for each member of the Oversight Panel at an equal rate to the daily equivalent of the annual rate of basic pay for level I of the Executive Schedule for each day each member is engaged in actual performance of duties. Establishes that full-time officers or employees of the United States or Congress who are members of the Oversight Panel cannot receive additional pay, allowances or benefits for service in the Oversight Panel, each Oversight Panel member is to receive travel expenses, including per diem in lieu of subsistence. Establishes that 4 members of the Oversight Panel constitute quorum, but a lesser number may hold hearings.
• Establishes that vacancies in the Oversight Panel are to be filled in the same manner of the original appointment.
• Establishes that the Oversight panel meets when requested by the Chairperson or by a majority of its members.
(d) STAFF. - Establishes that the Oversight Panel appoints and determines the pay of any personnel as appropriate. Oversight Panel is authorized to contract services from experts and consultants. Upon a request by the Oversight Panel, the head of any Federal department or agency will provide personnel on a reimbursable basis to the Oversight Panel, to carry out the duties of the Oversight Panel under the act.
(e) POWERS.-
• Establishes that the Oversight Panel may hold hearings, sit and act at times and places, take testimony, receive evidence, and administer oaths or affirmations to witnesses appearing before it. Establishes that if authorized by the Oversight Panel any of its members or agents may take any action the Oversight Panel is authorized to take under the Act.
• Establishes that upon request of necessary information to carry out its duties from the Oversight Panel’s Chairperson to any department or agency, such department or agency shall provide the information requested to the Oversight Panel.
• Requires that the Oversight Panel receive and consider all reports all reports to be submitted to it under the Act.
(f) TERMINATION. - Establishes that the Oversight Panel will terminate 6 months after the December 31, 2009 termination date specified in section 120 of the Act.
(g) FUNDING FOR EXPENSES.-
• Authorizes the Oversight Panel to appropriate necessary funds for any fiscal year from the applicable account of the House of Representatives and the contingent fund of the Senate, half and half from each respectively.
• Requires the Secretary to transfer an amount equal to the Oversight Panel’s expenses, upon presentation of a statement by the Oversight Panel’s Chairperson, from the funds made available to the Secretary under the Act to the applicable account of the House of Representatives and contingent fund of the Senate as reimbursement for the Oversight Panel’s expenses.
SECTION 126. FDIC AUTHORITY.
Provides language to make amendments to the Federal Deposit Insurance Act with respect to the following:
• Prohibition on false advertising, misuse, and misrepresentation of FDIC names to indicate that any deposit liability, obligation, certificate, or share is insured or guaranteed by the FDIC when is not.
• Federal banking agency enforcement authority for violations by persons for which the agency is the appropriate Federal banking agency or institution-affiliated party;
• FDIC enforcement authority if the appropriate federal banking agency fails to follow FDIC’s recommendation to take enforcement action;
• FDIC additional authority on jurisdiction over any person (except persons for which another agency is the appropriate Federal banking agency or institution –affiliated party), and any person that aids or abets a violation; authority to conduct investigations and enforcement actions. Establishes that these provisions must not be construed as barring any action otherwise available under the laws of the United States or any State, to any Federal or State agency or individual.
• Enforcement orders on false advertising or misuse of names to indicate insured status, including a temporary order requiring immediate cessation of activity or practice that resulted in the notice of charges, and affirmative action to prevent further violation or remedy an existing violation. Any such temporary order will have effect upon service and remain effective and enforceable pending completion of an administrative proceeding.
• Civil money penalties for violations on false advertising, misuse and misrepresentation of FDIC names.
• Unenforceability of certain provisions in existing, or future standstill, confidentiality agreements that affect, restrict, or limit the ability of any person to offer to acquire or acquire, prohibit any person from offering to acquire or acquiring, or prohibit such person from using any previously disclosed information in connection with an offer to acquire or acquisition of all or part of any insured depository institution, including any liabilities, assets, or interest therein, in connection with any transaction in which the Corporation exercises its authority. Enforcement of such provisions or imposition of liabilities is contrary to public policy.
• Provides technical and conforming amendments accordingly.
SECTION 127. COOPERATION WITH THE FBI.
Requires that any Federal financial regulatory agency to cooperate with the Federal Bureau of Investigation and other law enforcement agencies which investigate fraud, misrepresentation, and malfeasance with respect to development, advertising and sale of financial products.
SECTION 128. ACCELERATION OF EFFECTIVE DATE.
Provides that the effective date of the amendments to the Financial Services Regulatory Relief Act of 2006 is accelerated from October 1, 20011 to October 1, 2008, which authorize the Federal Reserve to pay interest on reserves.
SECTION 129. DISCLOSURES ON EXERCISE OF LOAN AUTHORITY.
(a) IN GENERAL.-Requires that the Board provides a report to the Committee on Banking, Housing, and Urban Affairs of the Senate and the Committee on Financial Services of the House of Representatives, which includes a justification for exercising its authority and the specific terms of the actions of the Board, no later than 7 days after the Board exercises its authority on emergency lending under the Federal Reserve Act (Section 13, third paragraph).
(b) PERIODIC UPDATES.-Requires that the Board provides updates to Congress once every 60 days while the subject loan is outstanding, which include status of the loan, value of collateral held by the Federal reserve bank, and the projected cost to taxpayers.
(c) CONFIDENTIALITY.-Requires confidentiality of the information reported to Congress under this section. Such information can only be made available to the Chairpersons and Ranking Members of the Committees
(d) APPLICABILITY.-Establishes that the provisions of this section are in force with respect to the emergency lending authorities under the Federal Reserve Act. Establishes that the report to Congress be required starting no later than 30 days after the date of enactment with respect to the exercise of authority.
(e) SHARING OF INFORMATION.-Establishes that the reports under this section be submitted to the Congressional Oversight Panel.
SECTION 130. TECHNICAL CORRECTIONS.
Indicates the technical corrections needed for the Truth in Lending Act.
SECTION 131. EXCHANGE STABILIZATION FUND REIMBURSEMENT.
(a) REIMBURSEMENT.-Requires that the Secretary reimburse the Exchange Stabilization Fund from funds authorized under the Act, for any funds used for the Treasury Money Market Funds Guaranty Program for the U.S. money market mutual fund industry.
(b) LIMITS ON USE OF EXCHANGE STABILIZATION FUND.-Prohibits the Secretary from using the Exchange Stabilization Fund to establish any future guaranty programs for the U.S. money market mutual fund industry.
SECTION 132. AUTHORITY TO SUSPEND MARK-TO-MARKET ACCOUNTING.
(a) AUTHORITY. - Authorizes the Securities and Exchange Commission (SEC) to suspend the application of Statement Number 157 of the Financial Accounting Standards Board (FAS) (which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements) by rule, regulation, or order, if the SEC determines that is necessary in the public interest and protects investors.
(b) SAVINGS PROVISION.-Establishes that the provisions in this section must not be construed to restrict or limit any authority of the SEC under securities laws in effect on the date of enactment of the Act.
SECTION 133. STUDY ON MARK-TO-MARKET ACCOUNTING.
(a) STUDY.- Requires that the SEC, in consultation with the Board and the Secretary, conduct a study on market-to-market accounting standards as provided in Statement 157 of the FAS, which includes the effects of the standards on a financial institution’s balance sheet, the impact of such accounting on bank failures in 2008, the impacts of the standards on the quality of financial information available to investors, the process used by the FAS Board in developing the accounting standards, the advisability and feasibility of modification to the accounting standards, and alternative accounting standards to Statement 157 of the FAS.
(b) REPORT.-Requires that the SEC submit a report to Congress on the findings of the study, including any administrative and legislative recommendations, within 90 days of the date of enactment of the Act.
SECTION 134. RECOUPMENT.
Requires the Director of the Office of Management and Budget, in consultation with the Director of the Congressional Budget Office, submits a report to Congress on the net amount within TARP 5 years after the date of the enactment of the Act. In case of a shortfall, requires that the President submit a legislative proposal to recoup from the financial industry an amount equal to the shortfall to ensure that the TARP does not add to the deficit or national debt.
SECTION 135. PRESERVATION OF AUTHORITY.
Clarifies that, with exception of section 131 (b), nothing in this Act should be construed to limit the authority of the Secretary or the Board under any other provision of law.
SECTION 136. TEMPORARY INCREASE IN DEPOSIT AND SHARE INSURANCE COVERAGE.
(a) FEDERAL DEPOSIT INSURANCE ACT; TEMPORARY INCREASE IN DEPOIST INSURANCE. - Temporarily raises the amount of maximum deposit insurance limits from $100,000 to $250,000 from the date of enactment of the Act and ending on December 31, 2009. Establishes that the Board of Directors of the Corporation cannot take into account such temporary increase for purposes of assessments under the FDIC 7(b)(2); Establishes that from the enactment of the Act and until December 31, 2009, the Board of Directors of the Corporation may request from the Secretary a loan or loans necessary to carry out this subsection, which temporarily lifts the limitations established on such borrowing.
(b) FEDERAL CREDIT UNION ACT; TEMPORARY INCREASE IN SHARE INSURANCE.- Temporarily raises the amount of shared insurance coverage limits for credit unions from $100,000 to $250,000 from the date of enactment of the Act and ending on December 31, 2009. The National Credit Union Administration Board cannot take into account the temporary increase in standard maximum share insurance amount to set insurance premium charges. Establishes that, from the enactment of the Act and until December 31, 2009, the National Credit Union Administration Board may request from the Secretary a loan or loans necessary to carry out this subsection, temporarily lifting the limitations established on such borrowing.
(c) NOT FOR USE IN INFLATION ADJUSTMENTS. - Establishes that the temporary increase in the standard maximum deposit insurance amount is not to be used to make any inflation adjustment under the Federal Deposit Insurance Act or the Federal Credit Union Act.
Title II—Budget-Related Provisions
SECTION 201. INFORMATION FOR CONGRESSIONAL SUPPORT AGENCIES.
Requires that, upon request and to the extent consistent with law, all information used by the Treasury Secretary in connection with the authorized activities under the Act is made available to the Congressional Budget Office and Joint Committee on Taxation to assist in their conducting oversight, monitoring and analysis of the activities authorized under the Act.
SECTION 202. REPORTS BY THE OFFICE OF MANAGEMENT AND BUDGET AND THE CONGRESSIONAL BUDGET OFFICE.
(a) REPORTS BY THE OFFICE OF MANAGEMENT AND BUDGET.- Requires that the Office of Management and Budget report to the President and Congress, within 60 days of the first exercise of authority under TARP but in no case later than December 31, 2008, and on a semiannual basis thereafter, the following: an estimate of the cost and guarantees of the troubled assets (as of the first business day that is at least 30 days prior to the issuance of the report) determined according to section 123; the information used to calculate the estimate and a description of any outstanding commitments to purchase troubled assets; and a detailed analysis of how the estimate has changed from the previous report. Requires, from the second report to Congress, the Office of Management and Budget explain any differences between the current estimate and the prior estimate reported to Congress.
(b) REPORTS BY THE CONGRESSIONAL BUDGET OFFICE.- Requires that the Congressional Budget Office report to Congress, within 45 days of receipt of each report from the Office of Management and Budget, an assessment of such report, which includes: the cost of the troubled assets and their guarantees; information and valuation methods used to calculate cost, and impact on deficit and debt.
(c) FINANCIAL EXPERTISE. - Authorizes the Director of the Congressional Budget Office to employ personnel and procure the services of experts and consultants to carry out its duties.
(d) AUTHORIZATION OF APPROPRIATIONS. - Authorizes any sums necessary to produce the reports required by this section.
SECTION 203. ANALYSIS IN PRESIDENT’S BUDGET.
(a) IN GENERAL.- Provides amendment to United States Code, Section 1105(a), title 31 on the President’s budget contents and submissions to Congress, to include an analysis of the budgetary effects of the actions or plans of the Secretary on using authority provided by the Act, which includes an estimate, according to methodology required by the Federal Credit Reform, of the current value of assets purchased, sold and guaranteed under the authority of the Emergency Economic Stabilization Act of 2008 (EESA), the deficit, the debt held by the public and the gross Federal debt; an estimate calculated on a cash basis of the current value of all assets purchased, sold and guaranteed under the (EESA); a revised estimate substituting the cash-based estimate of the deficit, the debt held by the public, and the gross Federal debt; and the portion of the deficit attributed to any action taken by the Secretary using the authority provided under the EESA.
(b) CONSULTATION.-Requires that, for implementation of this section, the Director of Office of Management and Budget to consult periodically and at least annually with the Committee on the Budget of the House of Representatives, the Committee on the Budget of the Senate, and the Director of the Congressional Budget Office.
(c) EFFECTIVE DATE. - Establishes that the amendment and reporting requirement of this section will apply beginning on the fiscal year 2010 Presidential budget submission.
SECTION 204. EMERGENCY TREATMENT.
Designates all the provisions of the Act as an emergency requirement and necessary to meet emergency needs, and establishes that the amounts provided in the Act will not count for purposes of the budget for fiscal year 2008.
Title III—Tax Provisions
SECTION 301. GAIN OR LOSS FROM SALE OR EXCHANGE OF CERTAIN PREFERRED STOCK.
(a) IN GENERAL.-Establishes that for purposes of the Internal Revenue Code of 1986, gain or loss from the sale or exchange of any applicable preferred stock by any applicable financial institution will be treated as ordinary income or loss.
(b) APPLICABLE PREFERRED STOCK.- Defines “applicable preferred stock” under this section as: any stock which is preferred stock in the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation which was held by the applicable financial institution on September 6, 2008, or sold or exchanged by the applicable financial institution on or after January 1, 2008 and before September 6, 2008.
(c) APPLICABLE FINANCIAL INSTITUTION.- Defines “applicable financial institution” under this section as a financial institution according to the Internal Revenue Code of 1986, 582(c)(2), or a depository institution holding company as defined by the FDIC 3(w)(1). Determines rule for sales or exchange of preferred stock under this section with respect to determination of applicable financial institutions.
(d) SPECIAL RULE FOR CERTAIN PROPERTY NOT HELD ON SEPTEMBER 6, 2008.-Provides that the Secretary or the Secretary’s delegate can extend the application of this section to all or a portion of the gain or loss form a sale or exchange in cases where an applicable financial institution sells or exchanges applicable preferred stock after September 6, 2008 when it did not held such stock on that date, however, the basis of such stock in the hands of the person that held the stock on that date is the same as the basis of the applicable financial institution holding the stock; and when an applicable financial institution is a partner in a partnership which held the preferred stock on September 6, 2008 and later sold or exchanged such stock or sold it or exchanged it on or after January 1, 2008 and before September 6, 2008.
(e) REGULATORY AUTHORITY.-Authorizes the Secretary or the Secretary’s delegate to issue any guidance, rules, or regulations necessary to carry out the purposes of this section.
(f) EFFECTIVE DATE.-Establishes that this section applies to sales or exchanges occurring after December 31, 2007 in taxable years ending after December 31, 2007.
SECTION 302. SPECIAL RULES FOR TAX TREATMENT OF EXECUTIVE COMPENSATION OF EMPLOYERS PARTICIPATING IN THE TROUBLED ASSETS RELIEF PROGRAM.
(a) DENIAL OF DEDUCTION.-
• Provides an amendment to Internal Revenue Code of 1986 (subsection (m) of section162) by adding a Special Rule for Application to Employers Participating in the TARP, which limits the deductions allowed in any taxable year for executive remuneration for services under TARP by a covered executive in excess of $500,000 for any taxable year; for deferred deduction executive remuneration for services under TARP by a covered executive in excess of $500,000, for any taxable year.
• Defines “Applicable Employer’ as any employer from whom one or more trouble assets are acquired under a program established by the Secretary under TARP if the aggregate amount of the assets acquired for all taxable years exceeds $300,000,000. Provides that if the only sales of troubled assets by an employer under the program are through one or more direct purchases, as described in section 1139(c) of the Act, such assets will not be taken into account when calculating the aggregate $300,000,000 of troubled assets’ sales.
• Defines “Applicable Taxable Year” as the first taxable year of the employer, which includes any portion of the period during which the authorities under TARP are in effect and in which the aggregate amount of troubled assets acquired from the employer during the taxable year and aggregate amount for all preceding taxable years exceeds $300,000,000, and any subsequent taxable year that includes any portion of the period in effect under TARP.
• Defines “Covered Executive” as any employee who, during the portion of the taxable year in which the authorities of the Act are in effect, is the chief executive officer or the chief financial officer of the applicable employer, or an individual acting in either such capacity; or who is one of the three highest compensated officers of the applicable employer for the taxable year. Establishes that if an employee is the covered executive of an applicable employer for any taxable year, the employee will be treated as covered executive of such employer for all subsequent applicable taxable years, and any applicable subsequent taxable years in which any executive remuneration deferred deductions would apply
• Defines “Executive Remuneration” as the applicable employee remuneration of the covered executive. Establishes that the term does not include any deferred deduction executive remuneration for services performed in a prior applicable taxable year.
• Defines “Deferred Deduction Executive Remuneration” as remuneration which would be executive remuneration for services performed in an applicable taxable year but for the fact that the deduction for such remuneration is allowable in a subsequent taxable year.
• Authorizes the Secretary to issue guidance, rules, or regulations necessary to carry out the this subsection of the Act, including the extent in which it applies in case of any acquisition, merger, or reorganization of an applicable employer.
(b) GOLDEN PARACHUTE FULE.-
• Provides amendments to the Internal Revenue Code of 1986, and includes a subsection on Special Rule for Application to Employers Participating in the TARP, with respect to severance from employment of a covered executive of an applicable employer during the period in which the TARP’s authorities under the Act are in effect.
• Restates that any term used in this subsection is also used in section 162(m)(5) and has the same meaning as in such section.
• Defines “Applicable Severance from Employment” as any severance from employment of a covered executive by reason of an involuntary termination of the executive by the employer, or in connection with any bankruptcy, liquidation, or receivership of the employer.
• Establishes that this section does not apply if a payment treated as a parachute payment by this section is also a parachute payment determined without regard to this section.
• Authorizes the Secretary to issue guidance, rules, or regulations as necessary: to carry out the purposes of this subsection and the Act, including to the extent that this subsection applies in case of any acquisition, merger, or reorganization or an applicable employer; to apply this section and section 4999 in cases where one or more payments to any individual are treated as parachute payments; to prevent the avoidance of application of this section through mischaracterization of a severance from employment as other than an applicable severance from employment.
(c) EFFECTIVE DATES.-
• Establishes that the amendment made under subsection(a) (Denial of Deduction) applies to taxable years ending on or after the date of enactment of the Act.
• Provides that the amendments made by subsection(b) (Golden Parachute Rule) apply to severance payments occurring during the period during which the authorities under the TARP are in effect.
SECTION 303. EXTENSION OF EXCLUSION OF INCOME FROM DISCHARGE OF QUALIFIED PRINCIPAL RESIDENCE INDEBTEDNESS.
(a) EXTENSION. - Extends current tax law on exclusion of income from the discharge of qualified principal residence indebtedness until January 1, 2013.
(b) EFFECTIVE DATE. - Provides that the amendment in this section applies to discharges of indebtedness occurring on or after January 1, 2010.
EESA POTENTIAL LEGAL ISSUES:
• Definition of Financial Institution includes “significant operations in the United States”, but it does not define what the extent of “significant” is.
• Section 101: Appointment of Assistant Secretary of the Treasury by the President to head the Office of Financial Stability that will implement the Troubled Asset Relief Program (TARP). No qualifications are indicated for the Assistant Secretary.
• Section 101: Allows Secretary to designate financial institutions as financial agents of the Federal government . Conflict of interests? Does state action doctrine apply to financial institutions in this role? Is the U.S. investment meant to be characterized as regulatory rather than market participatory action?
• There are 4 entities overseeing the authorities of the Secretary: Financial Stability Oversight Board (section 101), Special Inspector General for the TARP (section 121), Congressional Oversight Panel (section 125), and Comptroller General (sections 116, 117). In addition, the Financial Stability Oversight Board may appoint a credit review committee to evaluate purchase authority… Overlap of functions/reporting?
• Section 107: The FDIC can be selected as an asset manager for the TARP. Conflict of interests?
• Section 108: Secretary must issue guidelines to prevent conflicts of interest. No mention as to the content..
• Section 114: The Secretary determines whether the public disclosures that required for participant financial institutions are adequate, but the Secretary itself has transparency requirements…
• Section 114: Secretary must make publicly available details of any assets acquired, within 2 business days of purchase.. Unrealistic?
• Section 115: Congress only has 15 days to decide whether to approve or jointly disapprove the request for additional funds requested by the President. Seems too short time. What happens if Congress does not approve?
• Section 132: The power to suspend the mark to market rules will be hailed by some--it had been controversial, but it may result in the distortion of payment when the single purchaser is the government, and the method adopted by the SEC to suspend its application may have a host of unintended consequences.
• Section 302: the benchmark to deny tax allowances for executive compensation ($300 billion of aggregate troubled assets sold to the Secretary) seems excessive…
•
I will start with a short executive style summary of the major provisions of the EESA. I will then provide a section-by-section analysis. I will then suggest preliminarily some of the more interesting legal issues the EESA may raise.
In another post I will expand the analysis to include a discussion of additional issues raised by the Administration’s recently announced efforts to purchase interests in at least nine large banks to shore up the markets for loans. The move is said to “help to return stability to the US banking sector and ultimately help preserve free markets.” US Unveils $250bn Banking Rescue, BBC News Online. The U.S. joins a number of other free market states in either nationalizing its banking sector or in moving further to become a private participant in markets it also regulates.
EESA EXECUTIVE SUMMARY:
Background:
On September 19, 2008, Secretary Paulson proposed a 3-page legislative proposal to Congress for Treasury Authority to Purchase Troubled Assets from financial institutions in order to promote economic stability. The proposal granted authority to the U.S. Treasury to issue up to $700 billion of Treasury securities to finance the purchase of troubled assets (residential or commercial mortgages and any securities, obligations, or other instruments that are based on or related to such mortgages, and any other financial instrument as determined necessary to promote financial market stability). The Program in its original form was rejected by both Democrats and Republicans in Congress. In response to the Treasury Department's proposal, Congressional lawmakers drafted an alternate 110-page version of the proposed legislation as an amendment to bill H.R. 3997, called the Emergency Economic Stabilization Act of 2008 (EESA). On September 29, 2008, H.R. 3997 failed passage as the original House of Representatives vehicle for EESA. After the failed House of Representatives vote, Senate leaders prepared the Senate version of the Emergency Economic Stabilization Act of 2008 as an amendment to bill H.R. 1424, an existing bill from the House of Representatives. The 450- page Senate version of the EESA, included the base of the economic rescue plan voted on in the House and revised it to include additional provisions. On October 1, 2008 the Senate passed bill H.R. 1424 as the vehicle for the economic rescue legislation. On October 3, 2008, the House of Representatives passed a motion to concur in Senate Amendments to H.R. 1424. The President of the United States signed the bill into law shortly thereafter.
Bill H.R. 1424 provides authority for the Federal United States Government to purchase and insure certain types of troubled assets for the purposes of providing stability to and preventing disruption in the economy and financial system and protecting taxpayers, to amend the Internal Revenue Code of 1986 to provide incentives for energy production and conservation, to extend certain expiring provisions, to provide individual income tax relief, and for other purposes. The bill has three divisions: Division A, referred to as the Emergency Economic Stabilization Act of 2008; Division B, referred to as the Energy Improvement and Extension Act of 2008; and Division C, referred to as the Tax Extenders and Alternative Minimum Tax Relief Act of 2008. An executive summary of the Emergency Economic Stabilization is presented in this document.
TITLE I. TROUBLED ASSETS RELIEF PROGRAM
Section 101. Authorizes the Secretary of the Treasury to establish a Troubled Asset Relief Program (TARP) to purchase troubled assets from financial institutions. Establishes an Office of Financial Stability within the Treasury Department to implement the TARP. Requires that the Treasury Secretary takes any actions necessary to implement the TARP, including establishing guidelines and policies to carry out the purposes of the Act, and prevention of unjust enrichment.
Section 102. If the TARP is established, requires the Secretary to also establish a program to guarantee troubled assets originated or issued prior to March 14, 2008. Establishes the Troubled Assets Insurance Financing Fund to deposit the premiums collected from participating financial institutions to provide sufficient reserves for the program. Requires the Secretary to report to Congress within 90 days after enactment of the Act on program to guarantee troubled assets.
Section 103. Requires the Secretary to take specific considerations into account including protecting taxpayers’ interests and minimizing the impact on the national debt when exercising authorities under the Act. Requires the Secretary to consider the long-term viability of an institution in determining the use of funds under the Act.
Section 104. Establishes the Financial Stability Oversight Board to review exercise of authorities under the Act and ensure that policies implemented are in accordance with the Act, in the economic interests of the United States and taxpayers. Requires that Financial Stability Oversight Board reports to Congress at least quarterly.
Section 105. Requires the Secretary to report to Congress 60 days after exercise of first authority and every thirty days thereafter on overview of Secretary’s actions and expenditure of funds. Requires the Secretary to provide Congress a written tranche report for every $50 billion in assets purchased. Requires the Secretary to submit a written Regulatory Modernization Report to Congress prior to April 30, 2009 on the current state of the financial markets.
Section 106. Authorizes the Secretary to exercise its authorities under the Act at any time. Authorizes the Secretary to enter into financial transactions regarding any troubled asset purchased under the Act. Requires that proceeds from sale of troubled assets are used to reduce national debt.
Section 107. Allows the Secretary to waive provisions of the Federal Acquisition Regulation where compelling circumstances make compliance contrary to the public interest. Such waivers must be reported to Congress within 7 days. If provisions related to minority contracting are waived, the Secretary must develop alternate procedures to ensure the inclusion of minority contractors. Allows FDIC to be selected as an asset manager for residential mortgage loans and mortgage-backed securities.
Section 108. Requires the Secretary to issue regulations or guidelines to address and manage conflicts of interest in connection with the exercise of authorities provided under the Act.
Section 109. Requires the Secretary that for mortgages and mortgage-backed securities acquired through TARP to implement a plan to mitigate foreclosures. Allows the Secretary to use loan guarantees and credit enhancements to facilitate loan modifications and avoid foreclosures. Requires the Secretary to coordinate with other Federal agencies to modify and restructure loans considering net present value to the taxpayer.
Section 110. Requires the Federal property manager that holds, owns or controls mortgages and mortgage backed securities, and other assets secured by real estate to implement plans to maximize assistance to homeowners, and minimize foreclosures. Requires implementation no later than 60 days from date of enactment of the Act. Requires reporting to Congress 60 days after enactment of the Act and every 30days thereafter with details on loan modifications and foreclosures.
Section 111. Requires the Secretary issue executive compensation and corporate governance standards for those financial institutions in which the Secretary makes direct purchases of troubled assets. Such standards include limiting incentives, and prohibiting golden parachutes. If the Secretary buys purchases assets from an institution through an auction, and the purchase exceeds more than $300 million in assets, the Secretary must prohibit any new employment contract with a senior executive officer that provides a golden parachute. Requires the Secretary to provide guidelines within 2 months from the date of enactment of the Act.
Section 112. Requires the Secretary to coordinate with foreign financial authorities and central banks to establish programs similar to TARP.
Section 113. Requires the Secretary to minimize negative impact to taxpayers by holding assets to maturity and maximizing return on the assets for taxpayers and the Federal Government. Requires the Secretary to encourage the private sector to participate in the purchases of troubled assets. Requires the Secretary to use market mechanisms, such as auctions or reverse auctions, to maximize efficiency of taxpayer resources. Provides requirements and conditions for the Secretary’s authority on purchase of warrants and debt instruments.
Section 114. Requires the Secretary to make publicly available in electronic form a description, amounts, and pricing of assets acquired under the Act within 2 business days of purchase, trade or disposition.
Section 115. Provides the Secretary’s limitations to use the $700 million authorized under the Act. Authorizes the Secretary to use US$250 billion outstanding at any one time effective upon the date of enactment of the Act. Upon written certification of need by the President to Congress, an additional US$100 billion will be available. The remaining US$350 billion will be available unless within 15 calendar days of the President’s submission, Congress enacts a joint resolution of disapproval. The Secretary’s authority to use the remaining US$350 billion will be effective upon the expiration of the 15 day period.
Section 116. Requires the Comptroller General to commence ongoing oversight of TARP’s activities and performance, its agents and representatives, including vehicles established by the Secretary under the Act. Requires the Comptroller General to report to Congress once every 60 days. Requires TARP to establish and maintain adequate internal controls that provide assurance of the effectiveness and efficacy of operations, use of resources, reliability on financial reporting, and compliance with applicable laws and regulations.
Section 117. Requires the Comptroller General to undertake a study to determine the extent to which leverage and sudden deleveraging of financial institutions was a factor behind the current financial crisis.
Section 118. Provides authorization and appropriation of funds consistent with Section 115.
Section 119. Provides standards for judicial review, including injunctive and similar relief, to ensure that the actions of the Secretary are not arbitrary, capricious, an abuse of discretion, or not in accordance with law.
Section 120. Provides the termination date of the Secretary authorities under Act to establish and purchase and guarantee troubled assets terminate on December 31, 2009. Authorizes a two-year extension of such authorities if the Secretary submits a specified certification to Congress.
Section 121. Establishes the Office of the Special Inspector General for TARP to conduct, supervise, and coordinate audits and investigations of the purchase, management, and sale of assets by the Secretary under the Act. Requires the Special Inspector General to submit a report to Congress summarizing its activities no later than 60 days after its confirmation and every quarter thereafter. Authorizes $50 million from the amount made available to the Secretary is made available to the Special Inspector General.
Section 122. Increases the statutory limit on the public debt to $11.315 trillion.
Section 123. Establishes the manner in which the legislation will be treated for budgetary purposes under the Federal Credit Reform Act of 1990.
Section 124. Strengthens the Hope for Homeowners program to increase eligibility and improve the tools available to prevent foreclosures.
Section 125. Establishes the Congressional Oversight Panel to review and report to Congress on the status of the financial markets and regulatory system. Requires the Oversight Panel to submit a special report on regulatory reform to Congress no later than January 20, 2009.
Section 126. Amends the Federal Deposit Insurance Act to prohibit false advertising, misuse of Federal Deposit Insurance Corporation (FDIC) names, and misrepresentation of insured status.
Section 127. Requires that any Federal financial regulatory agencies to cooperate with the Federal Bureau of Investigation (FBI) and other law enforcement agencies investigating fraud, misrepresentation, and malfeasance regarding development, advertising, and sale of financial products.
Section 128. Accelerates the effective date of amendments to the Financial Services Regulatory Relief Act of 2006 from October 1, 2011 to October 1, 2008, authorizing the Federal Reserve to pay interest on reserves.
Section 129 Requires the Board to submit a report to Congress within 7 days after the use of its authority on emergency lender under the Federal Reserve Act. Requires the Board to provide updates to Congress once every 60 days.
Section 130. Provides technical corrections.
Section 131. Requires the Secretary to reimburse the Exchange Stabilization Fund from funds authorized under the Act. Prohibits any use of the Exchange Stabilization Fund to establish any future guaranty programs.
Section 132. Authorizes the Securities and Exchange Commission (SEC) to suspend application of Statement Number 157 (about mark-to-market accounting) of the Financial Accounting Standards Board.
Section 133. Requires the SEC in consultation with the Board and the Secretary conduct a study on market-to-market accounting standards as provided on the Financial Accounting Standards Board, to study. Requires the SEC to submit a report to Congress with the findings, including any administrative and legislative recommendations within 90 days of the date of the enactment of the Act.
Section 134. Requires the Director of the Office of Management and Budget, in consultation with the Director of the Congressional Budget Office, submit a report to Congress in 5 years. Requires the President submits to the Congress a legislative proposal to recoup from the financial industry any projected losses to the taxpayer.
Section 135. Clarifies that nothing in the Act limits the authority of the Secretary or the Board under any other provision of law.
Section 136 Temporarily increases the amount of deposit coverage and share insurance coverage from $100,000 to $250,000, until December 31, 2009.
TITLE II. BUDGET-RELATED PROVISIONS
Section 201. Requires all information used by the Secretary in connection with activities authorized under this Act (including the records to which the Comptroller General is entitled) to be made available, upon request, to the Congressional Budget Office and the Joint Committee on Taxation to assist in their conducting oversight, monitoring, and analysis of such authorized activities.
Section 202 Requires the Office of Management and Budget report to the President and Congress within 60 days of the first exercise of authority under the TARP, but no later than December 31, 2008, and semiannually thereafter: an estimate of the cost and guarantees of troubled assets and their guarantees, and the information used to calculate such estimate; and a detailed analysis of how the estimate has changed from the previous report. Requires the second and any ensuing reports to explain the differences between the current and previous estimates. Requires the Congressional Budget Office to assess and report to Congress within 45 days of receipt of each report from the Office of Management and Budget an assessment of such report, including: the cost of the troubled assets and their guarantees, the information and valuation methods used to calculate such cost, and the impact on the deficit and the debt. Authorizes appropriations.
Section 203 Requires the President's annual budget to Congress to include as supplementary materials an analysis of the budgetary effects of the actions or plans of the Secretary, including an estimate on the current value of assets purchased, sold and guaranteed under the authority of the Emergency Economic Stabilization Act. Requires the Director of Office of Management and Budget consult at least once annually with the Committee on the Budget of the House of Representatives, the Committee on the Budget of the Senate, and the Director of the Congressional Budget Office.
Section 204. Designates all provisions of this Act as an emergency requirement necessary to meet emergency needs. Prohibits rescissions of any amounts provided in it from being counted for budget enforcement purposes.
TITLE III. TAX PROVISIONS
Section 301. Provides for ordinary income or loss treatment of gain or loss from the sale or exchange of any applicable preferred stock by any applicable financial institution. Defines "applicable preferred stock" as preferred stock that was held by the applicable financial institution on September 6, 2008, or that was sold or exchanged on or after January 1, 2008, and before September 6, 2008. Defines "applicable financial institution" as banking, financial, or investment institution or a depository institution holding company. Allows the Secretary of the Treasury to apply ordinary gain or loss treatment to certain sales of preferred stock not held on September 6, 2008. Authorizes the Secretary to issue necessary regulations to carry out this section.
Section 302. Denies certain employers whose assets have been purchased under the TARP a tax deduction for the payment of compensation in excess of $500,000 to their executives or other highly compensated employees. Makes tax penalties for excess parachute payments applicable to employers who participate in TARP and their executives.
Section 303. Extends the current tax law on exclusion of income from the discharge of qualified principal residence indebtedness until January 1, 2013.
EESA
Section-by-Section Analysis
BILL H.R. 1424
DIVISION A - EMERGENCY ECONOMIC STABILIZATION
SECTION 1. SHORT TITLE AND TABLE OF CONTENTS
(a) SHORT TITLE. -“Emergency Economic Stabilization Act of 2008”
(b) TABLE OF CONTENTS.
SECTION 1. SHORT TITLE AND TABLE OF CONTENTS.
SECTION 2. PURPOSES
Provides authority and facilities that the Treasury Secretary can use to restore liquidity and stability to the U.S. financial system and to ensure that the authority is used in a way that protects home values, college funds, retirement accounts, and life savings, promotes job and economic growth and homeownership, maximize returns to taxpayers, and provides public accountability for its exercise of authority.
SECTION 3. DEFINITIONS
Contains definitions used under the Act for the following:
1. Appropriate Committees of Congress.
A) Committee on Banking, Housing and Urban Affairs, Committee on Finance, Committee on Budget, Committee on Appropriations of the Senate.
B) Committee on Financial Services, Committee on Ways and Means, Committee on the Budget, Committee on Appropriations of the House of Representatives.
2. Board: Board of Governors of the Federal Reserve System.
3. Congressional Support Agencies: Congressional Budget Office and Joint Committee on Taxation.
4. Corporation: Federal Deposit Insurance Corporation.
5. Financial Institution: Any institution, including, but not limited, to any bank, savings association, credit union, security broker or dealer, or insurance company, established and regulated under the laws of the United States or ay State, territory, or possession of the United States, the District of Columbia, Commonwealth of Puerto Rico, Commonwealth of Northern Mariana Islands, Guam, American Samoa, or the United States Virgin Islands and having significant operations in the United States, but excluding any central bank of, or institution owned by, a foreign government.
6. Fund: Troubled Assets Insurance Financing Fund.
7. Secretary: Secretary of the Treasury.
8. TARP: Troubled Asset Relief Program.
9. Troubled Assets:
A) Residential or commercial mortgages and any securities, obligations, or other instruments based on or related to such mortgages, in each case originated or issued on or before March 14, 2008; and
B) Any other financial instrument that the Secretary in consultation with the Chairman of the Board determines is necessary to promote financial market stability. Such determination must be in writing to the appropriate committees of Congress.
TITLE I - TROUBLED ASSETS RELIEF PROGRAM
SECTION 101. PURCHASES OF TROUBLED ASSETS.
(a) OFFICES; AUTHORITY.-
• Authorizes the Secretary to establish TARP to purchase and to make and fund commitments to purchase troubled assets from any financial institution on terms and conditions determined by the Secretary in accordance with the Act.
• Commencement of TARP should not be delayed by the establishment of policies, procedures and administrative requirements by the Secretary.
• Establishes an Office of Financial Stability within the Office of Domestic Finance of the Treasury Department to implement the TARP. Establishes an Assistant Secretary of the Treasury appointed by the President by and with the advice and consent of the Senate that will head the Office of Domestic Finance of the Treasury.
• Establishes clerical amendments
(b) CONSULTATION.-
• Requires the Secretary to consult with the Board, the Corporation, the Controller of the Currency, the Director of the Office of Thrift supervision and the Secretary of Housing and Urban Development.
(c) NECESSARY ACTIONS.-
• Requires the Treasury Secretary to take any necessary actions to carry out the purposes of the Act.
• Allows the Secretary to have direct hiring authority to appoint employees necessary to administer the Act and allows the Secretary to enter into contracts for services.
• Allows the Secretary to designate financial institutions as financial agents of the Federal Government to perform duties related to the Act.
• Allows the Secretary to establish vehicles which are authorized to purchase, hold, and sell troubled assets, and issue obligations providing the Secretary flexibility to manage the troubled assets.
• Authorizes the Secretary to issue regulations and other guidance to define terms or carryout the authorities or purposes of the Act.
(d) PROGRAM GUIDELINES.-
• Requires the Secretary to publish program guidelines before the earlier of the end of the 2 business days beginning on the date of the first purchase of troubled assets or the end of the 45 day period beginning on the date of the enactment of the Act. The guidelines will include:
(1) Mechanisms for purchasing troubled assets.
(2) Methods for pricing and valuing troubled assets.
(3) Procedures for selecting asset managers.
(4) Criteria for identifying troubled assets for purchase.
(e) PREVENTING UNJUST ENRICHMENT.-
• Requires the Secretary to take steps necessary to prevent unjust enrichment of participant financial institutions, including preventing the sale of troubled assets to the Secretary at a higher price than what the seller paid to purchase the asset.
SECTION 102. INSURANCE OF TROUBLED ASSETS.
(a) AUTHORITY.-
• If the Secretary establishes TARP, the Act requires the Secretary to establish a program to guarantee troubled assets of financial institutions originated or issued prior to March 14, 2008.
• Requires the Secretary to develop guarantees of troubled assets and the associated premiums for such guarantees.
• Requires the Secretary to determine and guarantee timely payment of principal of and interest on troubled assets without exceeding 100 percent of such payment upon request from a financial institution according to the purposes of the Act and on terms and conditions determined by the Secretary.
(b) REPORTS.-
• Requires the Secretary to report to Congress about the program no later than 90 days after enactment of the Act on program to guarantee troubled assets of financial institutions.
(c) PREMIUMS.-
• Requires the Secretary to collect premiums from any participating financial institutions as determined necessary by the Secretary for the purposes of the Act and to provide sufficient reserves.
• Allows the Secretary to vary rates based on credit risk associated with the trouble assets guaranteed.
• Requires the Secretary to publish methodology for setting premiums for a class of troubled assets and explanation of appropriateness of class of assets for participation in the program.
• Requires the Secretary to set premiums necessary to create sufficient reserves to meet anticipated claims and ensure taxpayer protection.
• Establishes adjustment to purchase authority limit of section 115.
(d) TROUBLED ASSETS INSURANCE FINANCING FUND.-
• Requires the Secretary to deposit fees collected into Troubled Assets Insurance Fund.
• Establishes a Troubled Assets Insurance Fund, which will consist of the premiums paid by participating institutions. Any balance is to be invested by the Secretary of United States Treasury securities, or be kept in cash on hand or on deposit.
• Requires the Secretary make payments from Fund to fulfill obligations of guarantees provided to financial institutions.
SECTION 103. CONSIDERATIONS.
• In using authority under this Act, the Treasury Secretary is required to take a number of considerations into account, including protecting the taxpayers’ interests, minimizing the impact on the national debt, providing stability and preventing disruption to financial markets to limit impact on economy and protect American jobs, savings, and retirement security, helping families keep their homes and stabilize communities, ensuring participation by all financial institutions regardless of size, geography, form of organization, number of assets, utility of purchasing other real estate owned and instruments backed by mortgages on multifamily properties.
• Requires the Secretary to determine the long-term viability of an institution in determining whether the purchase is the most efficient use of funds under the Act.
• Requires the Secretary to provide financial assistance to financial institutions serving low and moderate income populations that have assets less than $1,000,000 well capitalized as of June 30, 2008 and which stock will drop one or more capital levels as a result of the devaluation of the preferred government-sponsored enterprises.
• Requires the Secretary to ensure stability for U.S. counties and cities which suffered significant increased costs or losses.
• Requires the Secretary to protect the retirement security of Americans by purchasing troubled assets held on behalf of an eligible retirement plan described in the Act.
SECTION 104. FINANCIAL STABILITY OVERSIGHT BOARD.
(a) ESTABLISHMENT.-
Establishes the Financial Stability Oversight Board to review and make recommendations regarding the exercise of authority under this Act. In addition, it must ensure that the policies implemented by the Secretary protect taxpayers, are in the economic interests of the United States, and are in accordance with this Act.
(b) MEMBERSHIP.-
The Financial Stability Oversight Board is comprised of the Chairman of the Board of Governors of the Federal Reserve System, the Secretary of the Treasury, the Director of the Federal Home Finance Agency, the Chairman of the Securities and Exchange Commission and the Secretary of the Department of Housing and Urban Development.
(c) CHAIRPERSON.-
Mandates that the Chairperson is elected by members of the Financial Stability Oversight Board other than the Secretary.
(d) MEETINGS.-
Requires meeting by Financial Stability Oversight Board 2 weeks after Secretary’s first exercise of purchase authority and monthly thereafter.
(e) ADDITIONAL AUTHORITIES.-
Requires Financial Stability Oversight Board to ensure that policies implemented are in accordance with this Act, in the economic interests of the United States, and protect taxpayers.
(f) CREDIT REVIEW COMMITTEE.-
Allows the Financial Stability Oversight Board to appoint a credit review committee to evaluate purchase authority and assets purchased under such authority.
(g) REPORTS.-
Requires Board to report to Congress and Congressional Oversight Panel at least quarterly.
(h) TERMINATION.-
Establishes termination of Financial Stability Oversight Board and its authority on the expiration of the15-day period of the date that the last troubled asset is sold or transferred out of ownership of the Federal Government, or the date of the expiration of the last insurance contract.
SECTION 105. REPORTS.
(a) IN GENERAL.-
Within 60 days of the first exercise of authority under this Act and every month thereafter, the Secretary is required to report to Congress its activities under TARP, including an overview of the Secretary’s actions, the obligation and expenditure of funds provided for administrative expenses during the period, and a detailed financial statement about the Secretary’s use of its authority under the Act.
(b) TRANCHE REPORTS TO CONGRESS.-
For every $50 billion in assets purchased, the Secretary is required to submit a written report to Congress with a detailed description of all transactions, a description of the pricing mechanisms used, and justifications for the financial terms of such transactions, a description of the impact of the exercise of authority, a description of remaining challenges in the financial system, and an estimate of additional actions necessary to address such challenges.
(c) REGULATORY MODERNIZATION REPORT.-
The Secretary is required to submit a written report to Congress prior to April 30, 2009, on the current state of the financial markets, the effectiveness of the financial regulatory system, and to provide any recommendations for improvement.
(d) SHARING OF INFORMATION.-
Any report in this section is to be submitted to the Congressional Oversight Panel.
(e) SUNSET.-
Establishes reporting requirements termination for this section end on the date that the last troubled asset is sold or transferred out of ownership of the Federal Government, or the date of the expiration of the last insurance contract.
SECTION 106. RIGHTS; MANAGEMENT; SALE OF TROUBLED ASSETS; REVENUES AND SALE PROCEEDS.
(a) EXERCISE OF RIGHTS. - Establishes the right of the Secretary to exercise authorities under this Act at any time.
(b) MANAGEMENT OF TROUBLED ASSETS. - Provides the Secretary with the authority to manage troubled assets, including the ability to determine the terms and conditions associated with the disposition of troubled assets.
(c) SALE OF TROUBLE ASSETS. - Provides the Secretary with the authority to sell or enter into financial transactions in regard to any troubled asset under the Act.
(d) TRANSFER TO TREASURY. - Requires that proceeds from the sale of troubled assets to be used to pay down the national debt.
(e) APPLICATION OF SUNSET TO TROUBLED ASSETS.- Establishes that the authority of the Secretary to hold, purchase, or fund the purchase of a troubled asset under a commitment entered into before the December 21, 2009 is not subject to the provisions of section 120 (expiration of the Act on December 21, 2009).
SECTION 107. CONTRACTING PROCEDURES.
(a) STREAMLINED PROCESS. - Allows the Secretary to waive provisions of the Federal Acquisition Regulation where compelling circumstances make compliance contrary to the public interest. Such waivers must be reported to Congress within 7 days.
(b) ADDITIONAL CONTRACTING REQUIREMENTS.- If provisions related to minority contracting are waived, the Secretary must develop alternate procedures to ensure the inclusion of minority contractors.
(c) ELIGIBILITY OF FDIC. - Allows the FDIC to be selected as an asset manager for residential mortgage loans and mortgage-backed securities, and to be reimbursed by the services provided.
SECTION 108. CONFLICTS OF INTEREST.
(a) STANDARDS REQUIRED. - The Secretary is required to issue regulations or guidelines to manage or prohibit conflicts of interest in the administration of the program, including conflicts arising in selection of contractors, advisors, and asset managers, the purchase of troubled assets, management of troubled assets, post-employment restrictions.
(b) TIMING.-Requires that regulations or guidelines are issued soon after enactment of this Act.
SECTION 109. FORECLOSURE MITIGATION EFFORTS.
(a) RESIDENTIAL MORTGAGE LOAN SERVICING STANDARDS. - For mortgages and mortgage-backed securities acquired through TARP, the Secretary must implement a plan to mitigate foreclosures and to encourage servicers of mortgages to modify loans through Hope for Homeowners and other programs. Allows the Secretary to use loan guarantees and credit enhancement to facilitate loan modifications and avoid foreclosures.
(b) COORDINATION.- Requires the Secretary to coordinate with the Corporation, Board, the Federal Housing Finance Agency, the Secretary of Housing and Urban Development and other Federal government entities that hold troubled assets in order to identify opportunities to modify and restructure loans. If permissible, permit bona fide tenants to remain under terms of lease. For mortgages on residential rental properties, the plan must protect Federal, State and local rental subsidies and protections.
(c) CONSENT TO REASONABLE LOAN MODIFICATION.- Requires the Secretary to consent, if appropriate and considering net present value to taxpayers, to any request arising under existing investment contracts to loss mitigation measures, including term extensions, rate reductions, principal write downs, increases in loans with trust or other structures to be modified or removal of limitation of modifications.
SECTION 110. ASSISTANCE TO HOMEOWNERS.
(a) DEFINITIONS. - For this section:
Federal Property Manager means Federal Finance Agency (as conservator of the Federal national Mortgage Association and the Federal Home Loan Mortgage Corporation), the Corporation (residential mortgage loans and mortgage backed securities held by depository institutions according to Federal Deposit Insurance Act), and the Board (any mortgage or mortgage-backed securities held, owned, or controlled by or on behalf of a Federal reserve bank, or as collateral for an advance or discount not in default).
Consumer: (103 Truth in Lending Act (15 U.S. C. 1602): the term consumer used with reference to a credit transaction, characterizes the transaction as one in which the party to whom credit is offered or extended is a natural person, and the money, property, or services which are the subject of the transaction are primarily for personal, family, or household purposes.
Insured Depository Institution: (3 Federal Deposit Insurance Act (12 U.S.C. 1813) includes any uninsured branch or agency of a foreign bank or a commercial lending company owned or controlled by a foreign bank for purposes.
Servicer: 6(i)(2) of Real Estate Settlement Procedures Act of 1974 (12 U.S.C. 2605(i)(2)):
Person responsible for servicing of a loan (including the person who makes or holds a loan if such person also services the loan). The term does not include—
(A) the Federal Deposit Insurance Corporation or the Resolution Trust Corporation, in connection with assets acquired, assigned, sold, or transferred pursuant to section 13(c) of the Federal Deposit Insurance Act or as receiver or conservator of an insured depository institution; and
(B) the Government National Mortgage Association, the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation, the Resolution Trust Corporation, or the Federal Deposit Insurance Corporation, in any case in which the assignment, sale, or transfer of the servicing of the mortgage loan is preceded by—
(i) termination of the contract for servicing the loan for cause;
(ii) commencement of proceedings for bankruptcy of the servicer; or
(iii) commencement of proceedings by the Federal Deposit Insurance Corporation or the Resolution Trust Corporation for conservatorship or receivership of the servicer (or an entity by which the servicer is owned or controlled).
(b) HOMEOWNER ASSISTANCE BY AGENCIES.-
• Requires Federal property manager that holds, owns or controls mortgages and mortgage-backed securities, and other assets secured by real estate to implement plans to maximize assistance to homeowners, take advantage of HOPE for Homeowners Program, and minimize foreclosures.
• For residential mortgage loans, modifications include reduction in interest rates, reduction of loan principal and other similar modifications.
• For mortgages on residential rental properties, modifications include: continuation of existing Federal, State, and local rental subsidies and protections, and those that consider the need for operating funds to maintain decent and safe conditions of the property.
• Requires that implementation of the plan begins no later than 60 days after enactment of the Act.
• Requires each Federal property manager report to Congress beginning 60 days after enactment of the Act and every 30 days thereafter with details on loan modifications and foreclosures.
• Requires Federal property managers to consult with each other and utilize consistent approaches to comply with requirements in this section.
(c) ACTIONS WITH RESPECT TO SERVICERS.- Requires Federal property manager to encourage implementation of loan modifications by loan servicers and assist implementation of modifications in those security-backed obligations in which the Federal property manager is not an owner, but holds an interest.
(d) LIMITATION.- Requirements in this section do not supersede any other duty imposed on Federal property managers under other applicable laws.
SECTION 111. EXECUTIVE COMPENSATION AND CORPORATE GOVERNANCE.
(a) APPLICABILITY. - Any financial institution that sells troubled assets to the Secretary under the Act is subject to executive compensation requirements of IRS Code 1986 subsections (b) and (c) as applicable.
(b) DIRECT PURCHASES. - Requires that if the Secretary determines to make direct purchases of troubled assets from a financial institution where no bidding process or market prices are available, and the Secretary receives a meaningful equity or debt position in the institution, the Secretary will set executive compensation and corporate governance standards for the institution. The standards will only apply while the Secretary holds a debt or equity position in the institutions. The standards include:
• limits on compensation that exclude incentives for senior executive officers to take unnecessary and excessive risks that threaten the value of the financial institution during the period that the Secretary holds an equity or debt in the financial institution to prevent unnecessary and excessive risk-taking during the period the Secretary holds equity or debt position in the financial institution;
• provisions for the recovery by the financial institution of any bonus or incentive compensation paid to a senior executive officer based on statements of earnings, gains, or other criteria that are later proven to be materially inaccurate; and
• a prohibition on golden parachute payments by the financial institution to senior executive officers during the period that the Secretary holds and equity or debt position in the financial institution.
• Defines "senior executive officer", as an individual who is one of the top 5 highly paid executives of a public company, whose compensation is required to be disclosed according to the Securities Exchange Act of 1934, and non-public company counterparts.
(c) AUCTION PURCHASES.- Provides that if the Secretary purchases an institution’s troubled assets through an auction and those purchases exceed $300 million (including direct purchases), the Secretary must prohibit any new employment contract with a senior executive officer that provides a golden parachute in the event of involuntary termination, bankruptcy filing, insolvency, or receivership. Requires Secretary to issue guidance on this paragraph o later than 2 months after the enactment of the Act, the guidance will be effective upon issuance.
(d) SUNSET. - These provisions only apply to arrangements entered into while the TARP authorities are in effect.
SECTION 112. COORDINATION WITH FOREIGN AUTHORITIES AND CENTRAL BANKS.
• Requires the Secretary to coordinate with foreign financial authorities and central banks to establish programs similar to TARP.
• Provides that if foreign financial authorities or banks hold troubled assets as a result of extending financing to financial institutions that have failed or defaulted on the financing, those troubled assets qualify for purchase under TARP.
SECTION 113. MINIMIZATION OF LONG- TERM COSTS AND MAXIMIZATION OF BENEFITS FOR TAXPAYERS.
(a) LONG-TERM COSTS AND BENEFITS.-
• Requires the Secretary to minimize long-term negative impact to taxpayers, considering direct outlays, potential long-term returns, and overall economic benefits, including economic benefits as a result of improvements in economic activity and availability of credit, impact on individual savings and pensions, and reductions in losses to the Federal government.
• Requires Secretary to minimize negative impact to taxpayers by holding assets to maturity or for resale when the Secretary determines that market is optimal to maximizing return on the assets for taxpayers.
• Requires Secretary to determine price to sell assets, based on available financial analysis that will maximize return on investment for the Federal Government.
• Requires the Secretary to encourage the private sector to participate in purchases of troubled assets.
(b) USE OF MARKET MECHANISMS.-
• Requires the Secretary to make purchases at the lowest price that the Secretary determines to be consistent with the Act’s purposes.
• Requires the Secretary to use market mechanisms, such as auctions or reverse auctions, to
maximize efficiency of taxpayer resources.
(c) DIRECT PURCHASES. - Allows the Secretary to make direct purchases of assets if the Secretary determines that using market mechanisms is not appropriate. Requires that the Secretary pursue additional measures to ensure that prices paid for assets are reasonable and reflect underlying value of the asset.
(d) CONDITIONS ON PURCHASE AUTHORITY FOR WARRANTS AND DEBT INSTRUMENTS.-
• Requires that the Secretary does not purchase or make any commitment to purchase any troubled asset under the authority of the Act, unless the Secretary receives warrants from financial institutions which are traded on a national securities exchange giving the Secretary the right to receive non-voting common or preferred stock in the institution, voting stock for which as determined appropriate by the Secretary there is no exercise of voting power.
• For institutions not traded on a national securities exchange, warrants for common or preferred stock, or senior debt instrument for financial institutions that issued the warrant but are no longer listed or traded on a national securities exchange or securities association.
• Establishes that the terms and conditions of any warrant or senior debt instrument must meet the following requirements:
• Purposes: terms and conditions must be designed to provide participation by the Secretary for the benefit of the taxpayers in equity appreciation for warrant or equity securities, and reasonable interest for debt instruments, and provide additional protection for taxpayers against losses from sale of assets by the Secretary under the Act and the administrative expenses of the TARP.
• Authority to Sell, Exercise, or Surrender: the Secretary will exercise these rights on warrants or senior debt instruments received base on the conditions established in this section.
• Conversion: Requires that warrants received by the Secretary have option to convert to senior debt or contain protections for the value of the warrant as determined by the Secretary in the event that the issuing financial institution is no longer a listed trader on a national securities exchange or securities association.
• Protections: Requires that any warrant representing securities received by the Secretary contain anti-dilution provisions as employed in capital market transactions as determined by the Secretary to protect the value of the securities from market transactions such as stock splits, stock distributions, dividends, mergers and other forms of reorganization or recapitalization.
• Exercise Price: The exercise price for the warrants will be set by the Secretary.
• Sufficiency: Requires that a financial institutions guarantee to the Secretary sufficient shares of nonvoting stock available to fulfill obligations. If the financial institution has no sufficient authorized shares, the Secretary may accept equivalent senior debt note in an amount and on terms that compensate the Secretary with equivalent value if sufficient shareholder vote to authorize necessary additional shares cannot be obtained.
• Requires the Secretary to establish de minimis exceptions to requirements based on cumulative transactions of troubled assets purchased from any one financial institution during the duration of the program at not more than $100,000.
• Requires the Secretary to establish an exception to requirements and alternative requirements for any participating financial institution that is legally prohibited from issuing securities and debt instruments.
SECTION 114. MARKET TRANSPARENCY.
(a) PRICING.- Requires the Secretary to make publicly available in electronic form a description, amounts, and pricing of assets acquired under the Act within 2 business days of purchase, trade or disposition.
(b) DISCLOSURE.- Requires the Secretary to determine for each type of financial institutions that sell troubled assets to the Secretary, whether the public disclosure (on off-balance sheet transactions, derivatives instruments, contingent liabilities, and other sources of potential exposure) required for such financial institutions is adequate to provide the public with enough information on the true financial position of the institutions. If the disclosure is not adequate, it requires that the Secretary make recommendations for additional disclosure requirements to relevant regulators.
SECTION 115. GRADUATED AUTHORIZATION TO PURCHASE.
(a) AUTHORITY.- Establishes the Secretary’s limitations to purchase troubled assets under the Act:
• The Secretary’s authority is limited to $250,000,000,000 outstanding at any one time effective upon the date of enactment of the Act.
• Effective upon a written Presidential certification submitted to Congress that the Secretary needs to exercise authority; such authority will be limited to $350,000,000,000 outstanding at any one time.
• Anytime after Presidential certification to Congress, if the President submits a written report to Congress detailing the Secretary’s plan to exercise authority, such authority will be limited to $700,000,000,000 outstanding at any one time unless within 15 calendar days of submission Congress enacts a joint resolution of disapproval. Such authority will be effective upon the expiration of the 15 day period.
(b) AGGREGATION OF PURCHASE PRICES. - Establishes that for purposes of the dollar amount limitations on the Secretary’s authority under the Act, the amount of troubled assets purchased outstanding at any one time shall be determined by aggregating the purchase prices of all troubled assets held.
(c) JOINT RESOLUTION OF DISAPPROVAL.-
• Establishes that the Secretary may not exercise any authority under the Act for any amount in excess of $350,000,000,000 previously obligated, if a joint resolution disapproving the plan of the Secretary with respect to the additional amount is enacted into law within 15 calendar days after the date of Congress’ receipt of the President’s report detailing the Secretary’s plan to exercise authority.
• Defines joint resolution for purposes of this section as a joint resolution introduced no longer than 3 calendar days after the date of receipt by Congress of the President’s report detailing the Secretary’s plan, which does not have a preamble, which has the title “Joint resolution relating to the disapproval of obligations under the emergency Economic Stabilization Act of 2008”, and which resolving clause is specified as “That Congress disapproves the obligation of any amount exceeding the amounts obligated as described in paragraphs (1) and (2) of section 115(a) of the Emergency Economic Stabilization Act of 2008”.
(d) FAST TRACK CONSIDERATION IN THE HOUSE OF REPRESENTATIVES.-
• Establishes that the House must convene no later than the second calendar day after receipt of the Presidential report of the Secretary’s plan. If a joint resolution is referred to any committee of the House, it must report it to the House no later than 5 calendar days after receipt of the Presidential report. Failure to report the joint resolution on the specified period will result in discharge from further consideration; the joint resolution must then be referred to the appropriate calendar. No later than the sixth day after receipt by Congress of the Presidential report of the Secretary’s plan and after each authorized committee has reported to the House, the House shall proceed to consider the joint resolution. All points of order against the motion are waived. The motion is not debatable.
• Establishes that the joint resolution is considered as read, and all points of order against its consideration are waived. A motion to reconsider the vote on passage of the joint resolution shall not be in order.
(e) FAST TRACK CONSIDERATION IN SENATE.-
• Establishes that the Senate must convene no later than the second calendar day after notification by the leader of the Senate of receipt of the President’s report of the Secretary’s plan. The joint resolution must be placed immediately on the calendar upon introduction to the Senate.
• Establishes that it shall be in order to proceed to the consideration of the joint resolution at any time during the beginning of the 4th day and ending on the 6th day after the date Congress receives the President’s report of the Secretary’s plan. All points of order against the joint resolution and consideration of the joint resolution are waived. The motion to proceed is not debatable and it is not subject to a motion to postpone. A motion to reconsider the vote shall not be in order.
• Establishes that debate on the joint resolution and on all related debatable motions and appeals will be limited to 10 hours divided equally between the majority and minority leaders, and that an amendment to, motion to postpone, motion to proceed to consideration of other business, motion to recommit the joint resolution is not in order.
• Establishes that vote on passage shall occur immediately following the conclusion of the debate on a joint resolution, and that appeals from the decisions of the Chair on application of the rules of the Senate to the procedure on a joint resolution shall be decided without debate.
(f) RULES RELATING TO SENATE AND HOUSE OF REPRESENTATIVES.-
• Establishes the procedure that shall apply if before the passage of a joint resolution by one House, a joint resolution is received from the other House:
1. Coordination with Action by Other House: The joint resolution of the other House won’t be referred to a committee. The House receiving the resolution must proceed with the joint resolution as if no joint resolution had been received, but the vote on passage must be on the joint resolution of the other House.
2. Treatment of Joint Resolution of Other House: If one House fails to introduce or consider a joint resolution, the joint resolution of the other House must be entitled to expedited floor procedures.
3. Treatment of Companion Measures: Establishes that the companion measure from the House of Representatives shall not be debatable if the Senate receives the companion measure after passage of the joint resolution in the Senate.
4. Consideration After Passage.-
• Establishes that if Congress passes a joint resolution, the period beginning on the date the President is presented with the joint resolution and ending on the date the President takes action on the joint resolution will be discounted when computing the 15-calendar day period in which the Secretary’s authority will become effective.
• Establishes that if the President vetoes the joint resolution, the period beginning on the date the President vetoes the joint resolution and ending on the date Congress receives the veto message shall be disregarded in computing the 15-day calendar period in which the Secretary’s authority will become effective.
• Establishes that a veto message debate on in the Senate shall be 1 hour divided equally between the majority and minority leaders.
5. Rules of House of Representatives and Senate. – Establishes that the Joint Resolution of Disapproval, the Fast Track Consideration in the House of Representatives, and the Fast Track Consideration in Senate as well as this subsection are enacted by Congress as an exercise of the rulemaking power of the Senate and the House of Representatives respectively and with full recognition of the constitutional right of either House to change the rules, relating to the procedure of that House at any time, in the same manner and to the same extent as in the case of any other rule of that House.
SECTION 116. OVERSIGHT AND AUDITS.
(a) COMPTROLLER GENERAL OVERSIGHT.-
• Requires that upon establishment of TARP the Comptroller General of the United States begins ongoing oversight of TARP’s activities and performance, its agents and representatives, and vehicles established by the Secretary under the Act, including: performance of TARP on foreclosure mitigation, cost reduction, whether TARP has provided stability or prevented disruption to the financial markets or the banking system, and whether TARP has protected taxpayers; financial condition and internal controls of TARP, its representatives and agents; TARP’s transactions and commitments, terms of any future commitments to purchase assets; characteristics and disposition of acquired assets; efficiency of TARP’s operations in use of funds; compliance with all applicable laws and regulations by TARP, its agents and representatives; TARP’s efforts to prevent, identify, and minimize conflicts of interest involving TARP’s representatives; efficacy of contracting procedures including TARP’s efforts in evaluating proposals for inclusion and contracting of minorities, women, and minority- and women owned businesses, reporting total amount of fees paid and value delivered by TARP to all of its agents and representatives, and amounts paid or delivered to minority and women-owned businesses.
• Requires that the Secretary provides the Comptroller General with space and facilities in the Department of the Treasury necessary to facilitate oversight of TARP until termination of the TARP.
• Establishes that the Comptroller General has access upon request to any information, data, schedules, books, accounts, financial records, reports, files, electronic communications, or other papers, things or property belonging to or in use by the TARP, to any vehicles established by the Secretary under the Act, to the officers, directors, employees, independent public accountants, financial advisors, and other agents and representatives of the TARP; facilities for verifying transactions; the Comptroller General can make and retain copies of such books, accounts, and other records.
• Requires that the Treasure reimburse the Government Accountability Office for the full cost of any oversight activities as billed by the Comptroller General of the United States.
• Requires the Comptroller General to submit reports once every 60 days to the appropriate committees of Congress, and the Special Inspector General for the TARP. The Comptroller can also submit special reports according to the findings of its oversight activities.
(b) COMPTROLLER GENERAL AUDITS.-
• Requires that TARP prepares and issue, to the appropriate committees of Congress and the public, annual audited financial statements and that the Comptroller General audit such statements. Establishes that the Treasury must reimburse the Government Accountability Office for the full cost of such audit.
• Establishes that the Comptroller General can audit the programs, activities, receipts, expenditures and financial transactions of the TARP, the activities of any agents and representatives on behalf of the TARP, and the vehicles established by the Secretary under the Act.
• Requires that the TARP take action to address deficiencies identified by the Comptroller General or other auditor engaged by the TARP, or certifies to the appropriate committees of Congress that no action is necessary or appropriate.
(c) INTERNAL CONTROL.-
• Requires the TARP to establish and maintain an effective system of internal control that provides assurance of the effectiveness and efficacy of operations, use of resources of the TARP, the reliability of financial reporting and financial statements, and compliance with applicable laws and regulations.
• Requires the TARP to state, in conjunction with each annual financial statement, the responsibility of management for establishing and maintaining adequate internal control of financial reporting and state its assessment of effectiveness of internal control as of the end of the most recent year covered.
(d) SHARING OF INFORMATION. - Requires that any report or audit required under this section is also submitted to the Congressional Oversight Panel.
(e) TERMINATION.- Establishes that any oversight, reporting or audit requirement terminates on the later of the date that the last troubled assets acquired by the Secretary has been sold or transferred out of ownership or control of the Federal Government, or the date of expiration of the last insurance contract.
SECTION 117. STUDY AND REPORT ON MARGIN AUTHORITY.
(a) STUDY. - Requires the Comptroller General to undertake a study to determine the extent to which leverage and sudden deleveraging of financial institutions was factor behind the current financial crisis.
(b) CONTENT.- Requires that the study includes: an analysis of the roles and responsibilities of the Board, the Securities and Exchange Commission, the Secretary, and other Federal banking agencies with respect to monitoring leverage and acting to curtail excessive leveraging; an analysis of the authority of the Board to regulate leverage and process used by the Board to decide whether or not to use its authority; and analysis of any usage of margin authority by the Board; and recommendations for the Board and appropriate committees of Congress on the existing authority of the Board.
(c) REPORT. - Requires the Comptroller General to submit the report on the study to the Committee on Banking, Housing, and Urban Affairs of the Senate and the Committee on Financial Services of the House of Representatives no later than June 1, 2009.
(d) SHARING OF INFORMATION. - Requires that any reports submitted under this section also be submitted to the Congressional Oversight Panel.
SECTION 118. FUNDING.
Establishes that the Secretary is authorized to use the proceeds of the sale of any securities issued according to chapter 31 of title 31 of the United States Code for the costs of administering the authorities granted under the Act (section 115), and that such securities are extended to include the actions authorized by the Act, including administrative expenses. Establishes that any funds expended or obligated by the Secretary for actions authorized under the Act is deemed appropriated at the time of such expenditure or obligation.
SECTION 119. JUDICIAL REVIEW AND RELATED MATTERS.
(a) JUDICIAL REVIEW.-
• Establishes that the actions by the Secretary pursuant to the authority of the Act are subject to chapter 7 of title 5, United States Code, such final actions shall be held unlawful and set aside if found to be arbitrary, capricious, an abuse of discretion, or not in accordance with law.
• Establishes that no injunction or other form of equitable relief can be issued against the Secretary for actions under the Act, other than to remedy a violation of the Constitution
• Requires that the court consider and grant or deny any request for a temporary restraining order against the Secretary for actions under the Act within 3 days of the date of the request.
• Establishes that any request for a preliminary injunction against the Secretary for actions under the Act be considered and granted or denied by the court on an expedited basis.
• Requires that the court consider, grant or deny any request for a permanent injunction against the Secretary for actions under the Act on an expedited basis, and if possible consolidate trial on the merits with any hearing on a request for a preliminary injunction.
• Establishes that no claims may be brought against the Secretary by any person that divests its assets in participation of the program, with the exception of the provisions in this section and if expressly provided in a written contract with the Secretary.
• Establishes that any injunction or other form of equitable relief issued against the Secretary for actions under the Act will be automatically stayed. The stay will be lifted unless the Secretary seeks a stay from a higher court within 3 calendar days after the issuance of the relief.
(b) RELATED MATTERS.-
• Establishes that residential mortgage loans purchased by the Secretary under the Act remain subject to all claims and defenses that would otherwise apply notwithstanding the exercise of authority by the Secretary under the Act.
• Requires that the Secretary’s exercise of any authority under the Act does not impair the claims or defenses that would otherwise apply to persons other than the Secretary. Establishes that a servicer of pooled residential mortgages has a duty to all investors and holders of beneficial interests in such investment to determine if the net value of payments on the loan, as modified, can be greater than the anticipated net recovery resulting from foreclosure. The servicer does not have such duty to individual or groups of investors. If the servicer agrees to or implements a modification or workout plan when taking reasonable loss mitigation actions, including partial payments, it will be deemed to be acting in the best interests of all such investors.
SECTION 120. TERMINATION OF AUTHORITY.
• Establishes that the authorities under the Act to establish the TARP and purchase and guarantee troubled assets terminate on December 31, 2009.
• Establishes that the Secretary may extend the authority provided under the Act to expire no later than 2 years from the date of enactment of the Act upon submission of written certification to Congress, which includes a justification for the necessity of the extension and the expected cost to taxpayers.
SECTION 121. SPECIAL INSPECTOR GENERAL FOR THE TROUBLED ASSET RELIEF PROGRAM.
(a) OFFICE OF INSPECTOR GENERAL. - Requires the establishment of the Office of the Special Inspector General for the TARP.
(b) APPOINTMENT OF INSPECTOR GENERAL; REMOVAL.- Establishes that the head of the Office of the Special Inspector General for the TARP is the Special Inspector General for TARP (“Special Inspector General”), appointed by the President by and with advice and consent of the Senate. Such appointment must be made on the basis of integrity and demonstrated ability in accounting, auditing, financial analysis, law, management analysis, public administration, or investigations. The nomination of the Special Inspector General should be made as soon as practicable after the establishment of any program under TARP. The Special Inspector General is removable from office according to the Inspector General Act of 1978. The Special Inspector General is not considered an employee who determines policies by the United States in the nationwide administration of Federal law. The annual rate of basic pay for the Special Inspector General is that of an Inspector General according to the Inspector General Act of 1978.
(c) DUTIES.-
• Establishes the duties of the Special Inspector General, which include, conducting, supervising, and coordinating audits and investigations of the purchase, management, and sale of assets by the Secretary under any program established by the Secretary under TARP, and the management by the Secretary of any program under TARP, by collecting and summarizing information on: a description of categories of troubled assets purchase or procured by the Secretary, a listing of troubled assets purchased in each category, an explanation of the Secretary’s reasons to purchase each troubled asset, a listing of each financial institution from which troubled assets were purchased from, a listing of and detailed biographical information on each person or entity hired to manage such troubled assets, a current estimate of the total amount of troubled assets purchased under TARP, the amount of troubled assets sold, profit and loss incurred on each sale or disposition of each troubled asset, a listing of the insurance contracts under TARP. Establishes that the Special Inspector General also has duties and responsibilities of inspectors general according to the Inspector General Act of 1978.
• Requires that, according to its duties, the Special Inspector General establish, maintain and oversee appropriate payments, procedures.
(d) POWERS AND AUTHORITIES. - Establishes that the Inspector General has the authorities provided and duties specified on Inspector General Act of 1978.
(e) PERSONNEL, FACILITIES, AND OTHER RESOURCES.-
• Establishes that the Special Inspector General can select, appoint, and employ any necessary officers and employees, employ services, enter into contracts and other arrangements for audits, studies, analysis, and other services with public agencies and with private persons, an make any payments necessary to carry out its duties.
• Requires that upon request by the Inspector General, any department, agency, or entity of the Federal Government provide information or assistance as long as it is practicable and not in contravention of any existing law. Establishes that the Special Inspector General report to the appropriate committees of Congress any instances in which it determines that information or assistance requested is unreasonable refused or not provided.
(f) REPORTS.-
• Requires that the Special Inspector General submits to the appropriate committees of Congress a report summarizing its activities no later than 60 days after its confirmation, and every quarter thereafter. The report shall cover the120-period ending on the date of the report, and shall include a detailed statement of all purchases, obligations, expenditures, and revenues associated with any program established by the Secretary and the reports from the Special Inspector General’s duties. Such reporting should not be construed to authorize public disclosure of information that is specifically prohibited from disclosure by any other provision of law, specifically protected by Executive order from disclosure in the interest of national defense or national security or in the conduct of national affairs, or a part of an ongoing criminal investigation.
• Requires that the Special Inspector General also submits any reports required under this section to the Congressional Oversight Panel.
(g) FUNDING. - Requires $50,000,000, from the amount made available to the Secretary under section 118, is available to the Special Inspector General to carry out its duties. Such amount is to remain available until expended.
(h) TERMINATION.- Establishes that the Office of the Special Inspector General terminates on the later of the date the last troubled asset acquired by the Secretary under TARP has been sold or transferred out of the ownership or control of the Federal Government, or the date of the expiration of the last insurance issues under TARP.
SECTION 122. INCREASE IN THE STATUTORY LIMIT ON THE PUBLIC DEBT.
Establishes an amendment to subsection (b) of section 3101 title 31 of the United States Code to reflect a raise on the public debt to $11.315 trillion.
SECTION 123. CREDIT REFORM.
(a) GENERAL. - Establishes that the costs of purchases of troubled assets, guarantees, and any cash flows associated with authorized activities of the TARP will be determined under the Federal Credit Reform Act of 1990, as applicable.
(b) COSTS.- Establishes that for the purposes of the Federal Credit Reform Act of 1990 (502(5)) (2 U.S.C. 661a(5)), the cost and guarantees of troubled assets will be calculated by adjusting the discount rate for market risks (according to 502(5)(E) (2 U.S.C 661a(5)(E)); the cost of a modification of a troubled asset or guarantee of a troubled asset will be the difference between the current estimate, as specified in this subsection, under the terms of the troubled asset or guarantee of the troubled asset, and the modified current estimate of the troubled asset or guarantee of a troubled asset.
SECTION 124. HOPE FOR HOMEOWNERS AMENDMENTS.
Provides language for specific amendments to Section 257 of the National Housing Act (12 U.S.C. 1715z23) to strengthen the Hope for Homeowners program, increase eligibility and improve the tools available to prevent foreclosures.
SECTION 125. CONGRESSIONAL OVERSIGHT PANEL.
(a) ESTABLISHMENT. - Requires the establishment of a Congressional Oversight Panel (“Oversight Panel”).
(b) DUTIES. - Requires the Oversight Panel to review the current state of the financial markets and the regulatory system and submit reports to Congress, including:
1) Regular Reports that include use of the Secretary’s authority, contracting and administration authority, impact of purchases made under the Act on financial markets and financial institutions, contribution to market transparency as a result of information availability on transactions under the program, effectiveness of foreclosure mitigation efforts and effectiveness of program with respect to minimizing long-term costs and maximizing benefits for taxpayers. Requires regular reports be submitted to Congress no later than 30 days after the first exercise by the Secretary of authority under TARP, and every 30 days thereafter.
2) Special Report on Regulatory Reform: requires the Oversight Panel to submit a special report on regulatory reform to Congress no later than January 20, 2009, which analyzes the current state of the regulatory system and its effectiveness at overseeing participants in the financial system and protecting consumers; provides recommendations for improvement, including whether any participants in the financial markets currently outside of the regulatory system should become subject to the regulatory system; provides underlying rationale for recommendation and indicates if there are any gaps in existing consumer protections.
(c) MEMBERSHIP.-
• Establishes that Oversight Panel consist of 5 members: 1 member appointment by the Speaker of the H.R., 1 member appointed by the minority of the H.R., 1 member appointed by the majority leader of the Senate, 1 member appointed by the minority leader of the Senate, and 1 member appointed by the Speaker of the H.R. and the majority leader of the Senate, prior consultation with the minority leader of the Senate and the minority leader of the H.R.
• Establishes payment for each member of the Oversight Panel at an equal rate to the daily equivalent of the annual rate of basic pay for level I of the Executive Schedule for each day each member is engaged in actual performance of duties. Establishes that full-time officers or employees of the United States or Congress who are members of the Oversight Panel cannot receive additional pay, allowances or benefits for service in the Oversight Panel, each Oversight Panel member is to receive travel expenses, including per diem in lieu of subsistence. Establishes that 4 members of the Oversight Panel constitute quorum, but a lesser number may hold hearings.
• Establishes that vacancies in the Oversight Panel are to be filled in the same manner of the original appointment.
• Establishes that the Oversight panel meets when requested by the Chairperson or by a majority of its members.
(d) STAFF. - Establishes that the Oversight Panel appoints and determines the pay of any personnel as appropriate. Oversight Panel is authorized to contract services from experts and consultants. Upon a request by the Oversight Panel, the head of any Federal department or agency will provide personnel on a reimbursable basis to the Oversight Panel, to carry out the duties of the Oversight Panel under the act.
(e) POWERS.-
• Establishes that the Oversight Panel may hold hearings, sit and act at times and places, take testimony, receive evidence, and administer oaths or affirmations to witnesses appearing before it. Establishes that if authorized by the Oversight Panel any of its members or agents may take any action the Oversight Panel is authorized to take under the Act.
• Establishes that upon request of necessary information to carry out its duties from the Oversight Panel’s Chairperson to any department or agency, such department or agency shall provide the information requested to the Oversight Panel.
• Requires that the Oversight Panel receive and consider all reports all reports to be submitted to it under the Act.
(f) TERMINATION. - Establishes that the Oversight Panel will terminate 6 months after the December 31, 2009 termination date specified in section 120 of the Act.
(g) FUNDING FOR EXPENSES.-
• Authorizes the Oversight Panel to appropriate necessary funds for any fiscal year from the applicable account of the House of Representatives and the contingent fund of the Senate, half and half from each respectively.
• Requires the Secretary to transfer an amount equal to the Oversight Panel’s expenses, upon presentation of a statement by the Oversight Panel’s Chairperson, from the funds made available to the Secretary under the Act to the applicable account of the House of Representatives and contingent fund of the Senate as reimbursement for the Oversight Panel’s expenses.
SECTION 126. FDIC AUTHORITY.
Provides language to make amendments to the Federal Deposit Insurance Act with respect to the following:
• Prohibition on false advertising, misuse, and misrepresentation of FDIC names to indicate that any deposit liability, obligation, certificate, or share is insured or guaranteed by the FDIC when is not.
• Federal banking agency enforcement authority for violations by persons for which the agency is the appropriate Federal banking agency or institution-affiliated party;
• FDIC enforcement authority if the appropriate federal banking agency fails to follow FDIC’s recommendation to take enforcement action;
• FDIC additional authority on jurisdiction over any person (except persons for which another agency is the appropriate Federal banking agency or institution –affiliated party), and any person that aids or abets a violation; authority to conduct investigations and enforcement actions. Establishes that these provisions must not be construed as barring any action otherwise available under the laws of the United States or any State, to any Federal or State agency or individual.
• Enforcement orders on false advertising or misuse of names to indicate insured status, including a temporary order requiring immediate cessation of activity or practice that resulted in the notice of charges, and affirmative action to prevent further violation or remedy an existing violation. Any such temporary order will have effect upon service and remain effective and enforceable pending completion of an administrative proceeding.
• Civil money penalties for violations on false advertising, misuse and misrepresentation of FDIC names.
• Unenforceability of certain provisions in existing, or future standstill, confidentiality agreements that affect, restrict, or limit the ability of any person to offer to acquire or acquire, prohibit any person from offering to acquire or acquiring, or prohibit such person from using any previously disclosed information in connection with an offer to acquire or acquisition of all or part of any insured depository institution, including any liabilities, assets, or interest therein, in connection with any transaction in which the Corporation exercises its authority. Enforcement of such provisions or imposition of liabilities is contrary to public policy.
• Provides technical and conforming amendments accordingly.
SECTION 127. COOPERATION WITH THE FBI.
Requires that any Federal financial regulatory agency to cooperate with the Federal Bureau of Investigation and other law enforcement agencies which investigate fraud, misrepresentation, and malfeasance with respect to development, advertising and sale of financial products.
SECTION 128. ACCELERATION OF EFFECTIVE DATE.
Provides that the effective date of the amendments to the Financial Services Regulatory Relief Act of 2006 is accelerated from October 1, 20011 to October 1, 2008, which authorize the Federal Reserve to pay interest on reserves.
SECTION 129. DISCLOSURES ON EXERCISE OF LOAN AUTHORITY.
(a) IN GENERAL.-Requires that the Board provides a report to the Committee on Banking, Housing, and Urban Affairs of the Senate and the Committee on Financial Services of the House of Representatives, which includes a justification for exercising its authority and the specific terms of the actions of the Board, no later than 7 days after the Board exercises its authority on emergency lending under the Federal Reserve Act (Section 13, third paragraph).
(b) PERIODIC UPDATES.-Requires that the Board provides updates to Congress once every 60 days while the subject loan is outstanding, which include status of the loan, value of collateral held by the Federal reserve bank, and the projected cost to taxpayers.
(c) CONFIDENTIALITY.-Requires confidentiality of the information reported to Congress under this section. Such information can only be made available to the Chairpersons and Ranking Members of the Committees
(d) APPLICABILITY.-Establishes that the provisions of this section are in force with respect to the emergency lending authorities under the Federal Reserve Act. Establishes that the report to Congress be required starting no later than 30 days after the date of enactment with respect to the exercise of authority.
(e) SHARING OF INFORMATION.-Establishes that the reports under this section be submitted to the Congressional Oversight Panel.
SECTION 130. TECHNICAL CORRECTIONS.
Indicates the technical corrections needed for the Truth in Lending Act.
SECTION 131. EXCHANGE STABILIZATION FUND REIMBURSEMENT.
(a) REIMBURSEMENT.-Requires that the Secretary reimburse the Exchange Stabilization Fund from funds authorized under the Act, for any funds used for the Treasury Money Market Funds Guaranty Program for the U.S. money market mutual fund industry.
(b) LIMITS ON USE OF EXCHANGE STABILIZATION FUND.-Prohibits the Secretary from using the Exchange Stabilization Fund to establish any future guaranty programs for the U.S. money market mutual fund industry.
SECTION 132. AUTHORITY TO SUSPEND MARK-TO-MARKET ACCOUNTING.
(a) AUTHORITY. - Authorizes the Securities and Exchange Commission (SEC) to suspend the application of Statement Number 157 of the Financial Accounting Standards Board (FAS) (which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements) by rule, regulation, or order, if the SEC determines that is necessary in the public interest and protects investors.
(b) SAVINGS PROVISION.-Establishes that the provisions in this section must not be construed to restrict or limit any authority of the SEC under securities laws in effect on the date of enactment of the Act.
SECTION 133. STUDY ON MARK-TO-MARKET ACCOUNTING.
(a) STUDY.- Requires that the SEC, in consultation with the Board and the Secretary, conduct a study on market-to-market accounting standards as provided in Statement 157 of the FAS, which includes the effects of the standards on a financial institution’s balance sheet, the impact of such accounting on bank failures in 2008, the impacts of the standards on the quality of financial information available to investors, the process used by the FAS Board in developing the accounting standards, the advisability and feasibility of modification to the accounting standards, and alternative accounting standards to Statement 157 of the FAS.
(b) REPORT.-Requires that the SEC submit a report to Congress on the findings of the study, including any administrative and legislative recommendations, within 90 days of the date of enactment of the Act.
SECTION 134. RECOUPMENT.
Requires the Director of the Office of Management and Budget, in consultation with the Director of the Congressional Budget Office, submits a report to Congress on the net amount within TARP 5 years after the date of the enactment of the Act. In case of a shortfall, requires that the President submit a legislative proposal to recoup from the financial industry an amount equal to the shortfall to ensure that the TARP does not add to the deficit or national debt.
SECTION 135. PRESERVATION OF AUTHORITY.
Clarifies that, with exception of section 131 (b), nothing in this Act should be construed to limit the authority of the Secretary or the Board under any other provision of law.
SECTION 136. TEMPORARY INCREASE IN DEPOSIT AND SHARE INSURANCE COVERAGE.
(a) FEDERAL DEPOSIT INSURANCE ACT; TEMPORARY INCREASE IN DEPOIST INSURANCE. - Temporarily raises the amount of maximum deposit insurance limits from $100,000 to $250,000 from the date of enactment of the Act and ending on December 31, 2009. Establishes that the Board of Directors of the Corporation cannot take into account such temporary increase for purposes of assessments under the FDIC 7(b)(2); Establishes that from the enactment of the Act and until December 31, 2009, the Board of Directors of the Corporation may request from the Secretary a loan or loans necessary to carry out this subsection, which temporarily lifts the limitations established on such borrowing.
(b) FEDERAL CREDIT UNION ACT; TEMPORARY INCREASE IN SHARE INSURANCE.- Temporarily raises the amount of shared insurance coverage limits for credit unions from $100,000 to $250,000 from the date of enactment of the Act and ending on December 31, 2009. The National Credit Union Administration Board cannot take into account the temporary increase in standard maximum share insurance amount to set insurance premium charges. Establishes that, from the enactment of the Act and until December 31, 2009, the National Credit Union Administration Board may request from the Secretary a loan or loans necessary to carry out this subsection, temporarily lifting the limitations established on such borrowing.
(c) NOT FOR USE IN INFLATION ADJUSTMENTS. - Establishes that the temporary increase in the standard maximum deposit insurance amount is not to be used to make any inflation adjustment under the Federal Deposit Insurance Act or the Federal Credit Union Act.
Title II—Budget-Related Provisions
SECTION 201. INFORMATION FOR CONGRESSIONAL SUPPORT AGENCIES.
Requires that, upon request and to the extent consistent with law, all information used by the Treasury Secretary in connection with the authorized activities under the Act is made available to the Congressional Budget Office and Joint Committee on Taxation to assist in their conducting oversight, monitoring and analysis of the activities authorized under the Act.
SECTION 202. REPORTS BY THE OFFICE OF MANAGEMENT AND BUDGET AND THE CONGRESSIONAL BUDGET OFFICE.
(a) REPORTS BY THE OFFICE OF MANAGEMENT AND BUDGET.- Requires that the Office of Management and Budget report to the President and Congress, within 60 days of the first exercise of authority under TARP but in no case later than December 31, 2008, and on a semiannual basis thereafter, the following: an estimate of the cost and guarantees of the troubled assets (as of the first business day that is at least 30 days prior to the issuance of the report) determined according to section 123; the information used to calculate the estimate and a description of any outstanding commitments to purchase troubled assets; and a detailed analysis of how the estimate has changed from the previous report. Requires, from the second report to Congress, the Office of Management and Budget explain any differences between the current estimate and the prior estimate reported to Congress.
(b) REPORTS BY THE CONGRESSIONAL BUDGET OFFICE.- Requires that the Congressional Budget Office report to Congress, within 45 days of receipt of each report from the Office of Management and Budget, an assessment of such report, which includes: the cost of the troubled assets and their guarantees; information and valuation methods used to calculate cost, and impact on deficit and debt.
(c) FINANCIAL EXPERTISE. - Authorizes the Director of the Congressional Budget Office to employ personnel and procure the services of experts and consultants to carry out its duties.
(d) AUTHORIZATION OF APPROPRIATIONS. - Authorizes any sums necessary to produce the reports required by this section.
SECTION 203. ANALYSIS IN PRESIDENT’S BUDGET.
(a) IN GENERAL.- Provides amendment to United States Code, Section 1105(a), title 31 on the President’s budget contents and submissions to Congress, to include an analysis of the budgetary effects of the actions or plans of the Secretary on using authority provided by the Act, which includes an estimate, according to methodology required by the Federal Credit Reform, of the current value of assets purchased, sold and guaranteed under the authority of the Emergency Economic Stabilization Act of 2008 (EESA), the deficit, the debt held by the public and the gross Federal debt; an estimate calculated on a cash basis of the current value of all assets purchased, sold and guaranteed under the (EESA); a revised estimate substituting the cash-based estimate of the deficit, the debt held by the public, and the gross Federal debt; and the portion of the deficit attributed to any action taken by the Secretary using the authority provided under the EESA.
(b) CONSULTATION.-Requires that, for implementation of this section, the Director of Office of Management and Budget to consult periodically and at least annually with the Committee on the Budget of the House of Representatives, the Committee on the Budget of the Senate, and the Director of the Congressional Budget Office.
(c) EFFECTIVE DATE. - Establishes that the amendment and reporting requirement of this section will apply beginning on the fiscal year 2010 Presidential budget submission.
SECTION 204. EMERGENCY TREATMENT.
Designates all the provisions of the Act as an emergency requirement and necessary to meet emergency needs, and establishes that the amounts provided in the Act will not count for purposes of the budget for fiscal year 2008.
Title III—Tax Provisions
SECTION 301. GAIN OR LOSS FROM SALE OR EXCHANGE OF CERTAIN PREFERRED STOCK.
(a) IN GENERAL.-Establishes that for purposes of the Internal Revenue Code of 1986, gain or loss from the sale or exchange of any applicable preferred stock by any applicable financial institution will be treated as ordinary income or loss.
(b) APPLICABLE PREFERRED STOCK.- Defines “applicable preferred stock” under this section as: any stock which is preferred stock in the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation which was held by the applicable financial institution on September 6, 2008, or sold or exchanged by the applicable financial institution on or after January 1, 2008 and before September 6, 2008.
(c) APPLICABLE FINANCIAL INSTITUTION.- Defines “applicable financial institution” under this section as a financial institution according to the Internal Revenue Code of 1986, 582(c)(2), or a depository institution holding company as defined by the FDIC 3(w)(1). Determines rule for sales or exchange of preferred stock under this section with respect to determination of applicable financial institutions.
(d) SPECIAL RULE FOR CERTAIN PROPERTY NOT HELD ON SEPTEMBER 6, 2008.-Provides that the Secretary or the Secretary’s delegate can extend the application of this section to all or a portion of the gain or loss form a sale or exchange in cases where an applicable financial institution sells or exchanges applicable preferred stock after September 6, 2008 when it did not held such stock on that date, however, the basis of such stock in the hands of the person that held the stock on that date is the same as the basis of the applicable financial institution holding the stock; and when an applicable financial institution is a partner in a partnership which held the preferred stock on September 6, 2008 and later sold or exchanged such stock or sold it or exchanged it on or after January 1, 2008 and before September 6, 2008.
(e) REGULATORY AUTHORITY.-Authorizes the Secretary or the Secretary’s delegate to issue any guidance, rules, or regulations necessary to carry out the purposes of this section.
(f) EFFECTIVE DATE.-Establishes that this section applies to sales or exchanges occurring after December 31, 2007 in taxable years ending after December 31, 2007.
SECTION 302. SPECIAL RULES FOR TAX TREATMENT OF EXECUTIVE COMPENSATION OF EMPLOYERS PARTICIPATING IN THE TROUBLED ASSETS RELIEF PROGRAM.
(a) DENIAL OF DEDUCTION.-
• Provides an amendment to Internal Revenue Code of 1986 (subsection (m) of section162) by adding a Special Rule for Application to Employers Participating in the TARP, which limits the deductions allowed in any taxable year for executive remuneration for services under TARP by a covered executive in excess of $500,000 for any taxable year; for deferred deduction executive remuneration for services under TARP by a covered executive in excess of $500,000, for any taxable year.
• Defines “Applicable Employer’ as any employer from whom one or more trouble assets are acquired under a program established by the Secretary under TARP if the aggregate amount of the assets acquired for all taxable years exceeds $300,000,000. Provides that if the only sales of troubled assets by an employer under the program are through one or more direct purchases, as described in section 1139(c) of the Act, such assets will not be taken into account when calculating the aggregate $300,000,000 of troubled assets’ sales.
• Defines “Applicable Taxable Year” as the first taxable year of the employer, which includes any portion of the period during which the authorities under TARP are in effect and in which the aggregate amount of troubled assets acquired from the employer during the taxable year and aggregate amount for all preceding taxable years exceeds $300,000,000, and any subsequent taxable year that includes any portion of the period in effect under TARP.
• Defines “Covered Executive” as any employee who, during the portion of the taxable year in which the authorities of the Act are in effect, is the chief executive officer or the chief financial officer of the applicable employer, or an individual acting in either such capacity; or who is one of the three highest compensated officers of the applicable employer for the taxable year. Establishes that if an employee is the covered executive of an applicable employer for any taxable year, the employee will be treated as covered executive of such employer for all subsequent applicable taxable years, and any applicable subsequent taxable years in which any executive remuneration deferred deductions would apply
• Defines “Executive Remuneration” as the applicable employee remuneration of the covered executive. Establishes that the term does not include any deferred deduction executive remuneration for services performed in a prior applicable taxable year.
• Defines “Deferred Deduction Executive Remuneration” as remuneration which would be executive remuneration for services performed in an applicable taxable year but for the fact that the deduction for such remuneration is allowable in a subsequent taxable year.
• Authorizes the Secretary to issue guidance, rules, or regulations necessary to carry out the this subsection of the Act, including the extent in which it applies in case of any acquisition, merger, or reorganization of an applicable employer.
(b) GOLDEN PARACHUTE FULE.-
• Provides amendments to the Internal Revenue Code of 1986, and includes a subsection on Special Rule for Application to Employers Participating in the TARP, with respect to severance from employment of a covered executive of an applicable employer during the period in which the TARP’s authorities under the Act are in effect.
• Restates that any term used in this subsection is also used in section 162(m)(5) and has the same meaning as in such section.
• Defines “Applicable Severance from Employment” as any severance from employment of a covered executive by reason of an involuntary termination of the executive by the employer, or in connection with any bankruptcy, liquidation, or receivership of the employer.
• Establishes that this section does not apply if a payment treated as a parachute payment by this section is also a parachute payment determined without regard to this section.
• Authorizes the Secretary to issue guidance, rules, or regulations as necessary: to carry out the purposes of this subsection and the Act, including to the extent that this subsection applies in case of any acquisition, merger, or reorganization or an applicable employer; to apply this section and section 4999 in cases where one or more payments to any individual are treated as parachute payments; to prevent the avoidance of application of this section through mischaracterization of a severance from employment as other than an applicable severance from employment.
(c) EFFECTIVE DATES.-
• Establishes that the amendment made under subsection(a) (Denial of Deduction) applies to taxable years ending on or after the date of enactment of the Act.
• Provides that the amendments made by subsection(b) (Golden Parachute Rule) apply to severance payments occurring during the period during which the authorities under the TARP are in effect.
SECTION 303. EXTENSION OF EXCLUSION OF INCOME FROM DISCHARGE OF QUALIFIED PRINCIPAL RESIDENCE INDEBTEDNESS.
(a) EXTENSION. - Extends current tax law on exclusion of income from the discharge of qualified principal residence indebtedness until January 1, 2013.
(b) EFFECTIVE DATE. - Provides that the amendment in this section applies to discharges of indebtedness occurring on or after January 1, 2010.
EESA POTENTIAL LEGAL ISSUES:
• Definition of Financial Institution includes “significant operations in the United States”, but it does not define what the extent of “significant” is.
• Section 101: Appointment of Assistant Secretary of the Treasury by the President to head the Office of Financial Stability that will implement the Troubled Asset Relief Program (TARP). No qualifications are indicated for the Assistant Secretary.
• Section 101: Allows Secretary to designate financial institutions as financial agents of the Federal government . Conflict of interests? Does state action doctrine apply to financial institutions in this role? Is the U.S. investment meant to be characterized as regulatory rather than market participatory action?
• There are 4 entities overseeing the authorities of the Secretary: Financial Stability Oversight Board (section 101), Special Inspector General for the TARP (section 121), Congressional Oversight Panel (section 125), and Comptroller General (sections 116, 117). In addition, the Financial Stability Oversight Board may appoint a credit review committee to evaluate purchase authority… Overlap of functions/reporting?
• Section 107: The FDIC can be selected as an asset manager for the TARP. Conflict of interests?
• Section 108: Secretary must issue guidelines to prevent conflicts of interest. No mention as to the content..
• Section 114: The Secretary determines whether the public disclosures that required for participant financial institutions are adequate, but the Secretary itself has transparency requirements…
• Section 114: Secretary must make publicly available details of any assets acquired, within 2 business days of purchase.. Unrealistic?
• Section 115: Congress only has 15 days to decide whether to approve or jointly disapprove the request for additional funds requested by the President. Seems too short time. What happens if Congress does not approve?
• Section 132: The power to suspend the mark to market rules will be hailed by some--it had been controversial, but it may result in the distortion of payment when the single purchaser is the government, and the method adopted by the SEC to suspend its application may have a host of unintended consequences.
• Section 302: the benchmark to deny tax allowances for executive compensation ($300 billion of aggregate troubled assets sold to the Secretary) seems excessive…
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