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 FINANCIAL CRISIS INQUIRY COMMISSION REPORT

institutions under the newly formed Capital Purchase Program (CPP). Specifically,
Treasury would purchase senior preferred stock that would pay a  dividend for
the first five years; the rate would rise to  thereafter to encourage the companies
to pay the government back. Firms would also have to issue stock warrants to Treas-
ury and agree to abide by certain standards for executive compensation and corpo-
rate governance.
The regulators had already decided to allocate half of these funds to the nine firms
assembled that day:  billion each to Citigroup, JP Morgan, and Wells;  billion
to Bank of America;  billion each to Merrill, Morgan Stanley, and Goldman; 
billion to BNY Mellon; and  billion to State Street.
“We didn’t want it to look or be like a nationalization” of the banking sector, Paul-
son told the FCIC. For that reason, the capital injections took the form of nonvoting
stock, and the terms were intended to be attractive.  Paulson emphasized the im-
portance of the banks’ participation to provide confidence to the system. He told the
CEOs: “If you don’t take [the capital] and sometime later your regulator tells you that
you are undercapitalized . . . you may not like the terms if you have to come back to
me.”  All nine firms took the deal. “They made a coherent, I thought, a cogent argu-
ment about responding to this crisis, which, remember, was getting dramatically
worse. It wasn’t leading to a run on some of the banks but it was getting worse in the
marketplace,” JP Morgan’s Dimon told the FCIC. 
To further reassure markets that it would not allow the largest financial institu-
tions to fail, the government also announced two new FDIC programs the next day.
The first temporarily guaranteed certain senior debt for all FDIC-insured institutions
and some holding companies. This program was used broadly. For example, Gold-
man Sachs had  billion in debt backed by the FDIC outstanding in January ,
and  billion at the end of , according to public filings; Morgan Stanley had
 billion at the end of  and  billion at the end of . GE Capital, one of
the heaviest users of the program, had  billion of FDIC-backed debt outstanding
at the end of  and  billion at the end of . Citigroup had  billion of
FDIC guaranteed debt outstanding at the end of  and  billion at the end of
; JPMorgan Chase had  billion outstanding at the end of  and  billion
at the end of .
The second provided deposit insurance to certain non-interest-bearing deposits,
like checking accounts, at all insured depository institution.  Because of the risk to
taxpayers, the measures required the Fed, the FDIC, and Treasury to declare a sys-
temic risk exception under FDICIA, as they had done two weeks earlier to facilitate
Citigroup’s bid for Wachovia.
Later in the week, Treasury opened TARP to qualifying “healthy” and “viable”
banks, thrifts, and holding companies, under the same terms that the first nine firms
had received.  The appropriate federal regulator—the Fed, FDIC, OCC, or OTS—
would review applications and pass them to Treasury for final approval. The program
was intended not only to restore confidence in the banking system but also to provide
banks with sufficient capital to fulfill their “responsibilities in the areas of lending,
dividend and compensation policies, and foreclosure mitigation.” 