• Emergency Economic Stabilization Act
  • October 26, 2008
  • Law Firm: Vinson & Elkins LLP - Houston Office
  • On October 3, 2008, President Bush signed into law the Emergency Economic Stabilization Act of 2008 (the Act). The Act authorizes the Secretary of the Treasury (the Secretary) to establish the Troubled Asset Relief Program (the TARP) to purchase mortgage-backed securities and other troubled assets held by financial institutions. Upon establishment of the TARP, the Secretary has access to up to $700 billion with which to purchase troubled assets. When establishing the TARP, the Secretary must also establish a program to guarantee troubled assets originated or issued prior to March 14, 2008, including mortgage-backed securities (the Guarantee Program).

    The Act establishes a broad framework for both the TARP and the Guarantee Program and delegates authority to the Secretary to adopt regulations to carry out the Act. The Act loosely defines two key terms -- Financial Institutions, governing who can participate, and Troubled Assets, governing what may be purchased or insured -- leaving substantial discretion with the Secretary to interpret each term and thereby govern the overall scope of each program. The Act also creates executive compensation standards applicable to certain financial institutions participating in either program.

    Interested entities, including sponsored retirement or other benefit plans, should give particular attention to the potential application of both programs to their particular circumstances. Access to both programs and their utility to any particular entity ultimately will be determined by the regulations and procedures currently being developed by the Secretary.