A.M. Best Special Report: Treasury Department, Regulators Respond to Global Financial Crisis

Business Wire, Oct 27, 2008

OLDWICK, N.J. -- The Treasury Department and banking regulators unveiled several initiatives to unlock frozen credit markets and help restore confidence in the nation's banking system amid a growing global financial crisis. The Treasury Department will directly invest as much as $250 billion in financial institutions as part of the $700 billion authorized to buy troubled assets under the Emergency Economic Stabilization Act (EESA). The Federal Deposit Insurance Corporation (FDIC) also is offering temporary guarantees on senior unsecured debt issued by banks and non-interest bearing deposit accounts under a voluntary liquidity program.

* The EESA allows banks to record ordinary losses rather than capital losses on Fannie Mae and Freddie Mac preferred stock.

* The Treasury Department may consider whole loan purchases of mortgages under the $700 billion Troubled Asset Relief Program.

* The EESA allows the Securities and Exchange Commission to suspend mark-to-market accounting if it is in the public interest.

* The FDIC proposed a restoration plan for its deposit insurance fund (DIF) that would more than double the average assessment rate that banks pay into the fund beginning in April 2009.

* The restoration plan introduces a risk-based assessment system in which banks with a greater dependence on secured liabilities and brokered deposits would face higher assessment rates.

* The restoration plan incorporates estimates that bank failures could cost the DIF about $40 billion from 2008 to 2012.

* The DIF's reserve ratio stood at 1.01% as of June 30, 2008, its lowest level since March 31, 1995 when the ratio was 0.98%.

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