In the three weeks since the enactment of the Emergency Economic Stabilization Act of 2008 ("EESA" or "Act"), the Treasury Department has moved quickly to implement the Troubled Asset Relief Program ("TARP") under the Act. The TARP will offer significant opportunities to financial institutions--to obtain a capital investment from the Treasury, to sell troubled assets to the Treasury, or to obtain insurance for their troubled assets.

On October 14, the Treasury announced the Capital Purchase Program (the "CPP") under the TARP. The CPP will use the first tranche of available TARP funds¹ to purchase up to $250 billion of senior preferred shares on standardized terms from bank and thrift institutions.² The first $125 billion will be invested in nine large, systemically important bank holding companies. The remaining $125 billion will be available for other institutions, and the Treasury has indicated that there will be sufficient capital for all qualifying institutions.³ But they must act quickly, as the deadline to apply for the CPP is November 14, 2008, 5 P.M., EDT.

In addition, Treasury officials are working diligently to establish other TARP programs, including designing auctions to purchase mortgage-backed securities and other troubled assets, identifying which whole loans (at what value and how) to purchase, establishing a program for systemically significant failing institutions, and developing a program to insure assets.⁴ Institutions deciding whether to participate in the CPP and these other programs will need to consider carefully all the program terms, including corporate governance rules, which are analyzed in detail below. Following up on the WilmerHale webinar on EESA on October 10th,⁵ this newsletter analyzes the opportunities and considerations for institutions to participate in the CPP and other facilities under the TARP.

I. Capital Purchase Program

A close analysis of the Treasury's CPP is critical for any institution that is interested in participating. The CPP also offers the first window into how the Treasury may implement other programs under the TARP.⁶

Eligible Institutions. The CPP is available only for bank holding companies, financial holding companies, insured depository institutions, and saving and loan holding companies that engage solely or predominately in activities permissible for financial holding companies. In addition, institutions controlled by a foreign entity are not eligible. All capital purchases will occur at the highest-tier holding company, unless the depository institution is not controlled by a company.

Although this direct capital infusion program is limited to bank and thrift organizations, the Treasury has indicated that such eligibility restrictions will not necessarily apply to other TARP programs. Under the Act, eligible "financial institution[s]" are defined as "any institution . . . established and regulated under the laws of the U.S. or any State, territory, or possession of the U.S....and having significant operations in the United States."⁷ This definition expressly includes depository institutions, brokers, dealers and insurance companies, and expressly excludes "any central bank of, or institution owned by, a foreign government."⁸ In future programs, the Treasury will have to determine the full extent of the definition, including, for example, whether hedge funds or non-depository mortgage companies are eligible.

CPP Terms. While the Treasury has not yet made public any standardized documentation for CPP, it has released a term sheet and guidance that provide a general overview.⁹ The CPP will enable institutions to obtain new capital in the form of senior preferred stock equal to, at a minimum, 1% of risk-weighted assets, and up to a maximum of the lesser of 3% of risk-weighted assets or $25 billion. The CPP senior preferred shares will pay a dividend rate of 5% that will increase to 9% after five years.

The preferred stock will be nonvoting, other than certain customary consents on matters that could adversely affect the shares and a right to elect two additional directors in the event of certain nonpayment of the preferred dividends. The shares will be cumulative, except if issued by a depository institution that does not have a holding company. And the shares will be perpetual and redeemable at par, plus accrued dividends (subject to regulatory approval) after three years, or earlier with the proceeds of certain replacement equity offerings equal to at least 25% of the issue price of the preferred stock.

The CPP senior preferred stock will qualify as Tier 1 capital and will rank senior to common stock and pari passu with existing preferred stock other than junior preferred. Dividends on common stock and pari passu preferred stock will generally not be allowed unless the CPP preferred dividends have been paid, and the institutions will agree that, unless the CPP preferred stock has been redeemed, they will not increase their common stock dividends or buy back their common stock, subject to certain exceptions, for a period of three years.

The senior preferred stock issued pursuant to the CPP will be transferable and subject to registration rights. The Treasury intends to fund its purchase of all such senior preferred shares by the end of 2008.

The CPP demonstrates some of the flexibility built into the Treasury's authority under EESA. The statutory "troubled assets" that the Treasury may purchase under the Act are defined to include not only mortgages and mortgage-related assets, but also any other asset that the Treasury determines (after consulting with the Federal Reserve Board Chairman, and upon appropriate notice to Congress) is necessary to promote "financial market stability." ¹⁰ Treasury has interpreted this term to include the purchase of equity in a financial institution or its parent company. This same broad definition will be interpreted in the Treasury's implementation of its future programs to purchase and insure troubled assets.

Warrants. Under the CPP, the Treasury will also obtain warrants for common stock with a market value of 15% of the amount of senior preferred stock to be issued. The market value for purposes of determining the 15% amount will be based on the average trading price for the 20-trading days prior to the transaction date. The exercise price will be the market price determined using the same formula. The Treasury will agree not to vote any common stock it receives on exercise of the warrants. The warrants are not subject to contractual restrictions on transfer, so long as certain conditions apply.¹¹

EESA prohibits the Secretary of the Treasury (the "Secretary") from purchasing any troubled asset from a financial institution unless it receives warrants of this type. For publicly traded institutions, EESA requires the Treasury to receive warrants for nonvoting common stock, preferred stock or voting common stock with the exercise price set by the Treasury, but further provides that upon exercise the Treasury cannot exercise voting power.¹² For non-publicly-traded institutions, the Treasury must receive a warrant for common or preferred stock or a senior debt instrument of the financial institution.¹³ In these circumstances, however, the Treasury is not barred from voting such common stock.

EESA gives the Secretary broad discretion to structure the warrants and/or debt instruments, subject to a very general statutory requirement that they provide a "reasonable participation" in equity appreciation or a "reasonable interest rate premium" and that they "provide additional protection" against losses from sales of assets and TARP administrative expenses. The Secretary shall set the exercise price for the warrants "in the interest of taxpayers." Any warrant must contain an anti-dilution provision. There are no limitations on the amount of equity the Treasury can acquire or other constraints on the financial terms of the warrants.¹⁴

The purpose of the prohibition on the Secretary exercising voting power seems to be to prevent the Treasury from acquiring voting power or control over the institutions. The Treasury's warrants for voting stock, however, could be transferred to third parties that would not be subject to the non-voting restriction. Even where the Treasury acquires only non-voting equity, substantial government ownership could raise unusual fiduciary duty issues--for example, an institution's Board might need to consider if it owed a different or special duty to the Treasury/taxpayers in circumstances where the government's interests might be different from those of the private stockholders.

The IRS has indicated that the preferred stock and warrants issued under the CPP will in effect be disregarded for most purposes of applying the Internal Revenue Code's ("IRC") rules relating to limitation on the use of net operating losses when certain shifts in ownership occur.¹⁵

Application Process. Interested bank and thrift organizations should submit an application to their primary federal regulator. The application requires disclosure of the requested amount of capital; the amount of an institution's authorized but unissued preferred and common stock; total risk-weighted assets; any requirement of the Treasury the institution thinks it cannot comply with, and a description of any mergers, acquisitions, or other capital raisings that are currently pending or are under negotiation. The primary regulator will review the application and provide it along with its recommendation to the Treasury. The Treasury has indicated that all approved investments will be announced to the public within 48 hours.¹⁶

II. Considerations Regarding Participation in CPP and Other TARP Programs

In addition to the CPP, the Treasury is moving to implement other programs to purchase troubled mortgage-backed securities, whole loans and potentially other assets. The Treasury has indicated it is in the process of finalizing decisions regarding the asset managers to run these programs. The Treasury is also required by section 102 of EESA to establish the Troubled Assets Insurance Fund, to insure troubled assets, funded by premiums from participating institutions. On October 14, the Treasury released a request for public input on the Troubled Assets Insurance Fund, including how the program should be structured to minimize adverse selection. Comments are due October 28, 2008.¹⁷

Institutions interested in participating in the CPP and the additional TARP programs should consider a number of factors, including: (i) the potential for ongoing oversight at multiple government levels of the TARP, and (ii) perhaps most importantly, the executive compensation and corporate governance restrictions.

A. Governmental Oversight

Institutions participating in the TARP should be aware that the Treasury's administration of the TARP is subject to a number of overlapping layers of oversight.

In implementing the TARP, the Secretary is required to consult with the Federal Reserve Board ("FRB"), the Federal Reserve Bank of New York, the Federal Deposit Insurance Corporation, the Comptroller of the Currency, the Director of the Office of Thrift Supervision, the Chairman of the National Credit Union Administration Board, and the Secretary of Housing and Urban Development ("HUD").¹⁸

EESA creates the Financial Stability Oversight Board to be responsible for reviewing exercises of authority under the Act, with special attention paid to particular areas of the use of authority, including the policies of the Secretary and the Office of Financial Stability.¹⁹ The Financial Stability Oversight Board is comprised of the Chair of the FRB; the Secretary; the Director of the Federal Housing Finance Agency; the Chairman of the Securities and Exchange Commission and the Secretary of HUD.²⁰ Chairman Bernanke will serve as the Chairman of the Financial Stability Oversight Board.²¹

The Comptroller General is required to oversee and audit the TARP and provide reports to Congress every 60 days.²²

EESA creates a Special Inspector General's office to conduct, supervise and coordinate audits and investigations of the purchases of assets by the TARP.²³

A special Congressional Oversight Panel of five experts (to be appointed by the House and Senate Majority and Minority leadership) will also be created.²⁴

The Act also provides for judicial review of the Secretary's use of the authorities under the TARP and provides that actions found to be arbitrary, capricious, an abuse of discretion or not in accordance with the law will be unlawful.²⁵

These numerous and overlapping layers of oversight mean that TARP participants may expect to be subject to high levels of scrutiny by numerous different persons and entities. It is clear that participants' corporate governance and executive compensation practices, as discussed in detail below, will be subject to scrutiny, but other areas may be as well, such as: disclosure practices,²⁶ the use of funds derived from the TARP, and practices with respect to foreclosure avoidance and loss mitigation on underlying mortgage loans.

B. Executive Compensation and Corporate Governance

The financial crisis has brought the contentious issue of executive compensation to the forefront and made it a central piece of EESA. Notwithstanding the public excoriation of CEOs who have received substantial compensation packages while their companies have failed, there was significant resistance to including limitations on executive compensation in the final legislation. The result is a complex compromise that differentiates between types of federal assistance and vests substantial authority in the Secretary to determine executive compensation and corporate governance standards for participating financial institutions.

On October 14, 2008, the Treasury issued an interim final rule and guidelines on the executive compensation provisions in EESA. The interim rule applies to the CPP and is effective as of October 20, 2008.²⁷ The remaining guidelines apply to the TAAP (the Treasury's program to purchase troubled assets through auction)²⁸ and the PSSFI (a program the Treasury is developing to purchase troubled assets from systemically significant failing financial institutions),²⁹ and are effective as of October 3, 2008 (the date of enactment of EESA). The law and implementing guidance significantly tighten current restrictions on executive compensation for participating institutions. They also limit the deductibility under the IRC of some executive compensation. Financial institutions must adopt the Treasury's standards to participate in the TARP programs.

EESA section 111 governs payment of executive compensation to "senior executive officers" ("SEOs") of all financial institutions (public or private) participating in any program under the TARP. SEOs are the institution's CEO and CFO, or those performing similar functions, and the next three highly compensated executive officers, as defined under SEC executive compensation disclosure rules.³⁰ EESA section 302 contains a $500,000 limitation on the deductibility of compensation paid to "covered executives." It also limits the deductibility of excess golden parachute payments to covered executives and imposes an excise tax on the executives on any excess parachute amounts. In general, covered executives and SEOs are determined based on similar rules, but there are important differences in how such status is determined. For SEOs, compensation is determined based on current fiscal year compensation; for covered executives, compensation is determined based on the current applicable calendar year compensation. Further, once an executive is considered a covered executive, he or she generally remains a covered executive. Thus, for section 302 purposes, compensation paid to more than five persons may be subject to the deductibility limitations and excise tax. While there is likely to be significant overlap between executives who are SEOs and covered executives, it is likely that additional executives will be covered executives who are not SEOs.

The Treasury guidance makes clear that two or more financial institutions that are treated as a single employer under the IRC will be treated as a single employer under EESA. Under tax rules, control is generally based on 80 percent ownership. The controlled group rules do not apply to brother-sister controlled groups or combined groups.³¹ Thus, the SEOs of a parent of a participating financial institution will be subject to the executive compensation provisions.

EESA establishes two different sets of requirements for executive compensation depending on whether the Treasury acquires assets directly or through auction. Direct purchases involve a more stringent set of standards than auction purchases.

1. Direct Purchases

The CPP and the PSSFI are both governed by EESA section 111(b), which covers programs involving direct purchases of assets by the Treasury in connection with which the Treasury takes a "meaningful" equity or debt position. While there is no direct guidance in section 111 on what constitutes a meaningful position, Treasury clearly contemplates that the preferred stock investments and related warrants will satisfy that condition. Importantly, under the terms of the CPP, the Treasury's capital investments will be conditioned on the institution's and its SEOs' agreement to modify any existing arrangements to conform to the requirements of the executive compensation rules, as well as on the executives agreeing to waive any claims they might have a result of the modification requirements.³²

Section 111(b) and the Treasury rules impose three enumerated limitations on executive compensation of SEOs of institutions participating in the CPP or the PSSFI. These provisions will affect existing as well as new executive compensation arrangements.

First, for as long as the Treasury holds an equity or debt position, participants are prohibited from entering into incentive compensation arrangements that encourage SEOs to take "unnecessary and excessive risks that threaten the value of the financial institution."³³ The Treasury does not provide any substantive guidance on what might constitute unnecessary and excessive risks other than that they may include long-term as well as short-term risks.³⁴ Rather, the Treasury's interim final rule defers to the institution's compensation committee. The Treasury's requirements are:

• Within 90 days of the purchase by the Treasury, a financial institution must review, through its compensation committee and together with its senior risk officers, the SEO incentive compensation arrangements to ensure that they do not violate this provision.
• After the initial review, the compensation committee must meet at least annually with senior risk officers to discuss and review the relationship between the institution's risk management policies and practices and the SEO incentive compensation arrangements.
• The compensation committee must certify the completion of the required reviews. The certification may state: "The compensation committee certifies that it has reviewed with senior risk officers the SEO incentive compensation arrangements and has made reasonable efforts to ensure that such arrangements do not encourage SEOs to take unnecessary and excessive risks that threaten the value of the financial institution."
• Institutions whose securities are registered with the SEC should provide the required certification in the Compensation Discussion and Analysis under Item 402(b) of Regulation S-K. Private financial institutions are required to file their certifications with their primary regulatory agency.³⁵

Second, SEO bonus and incentive compensation paid by a participating financial institution while the Treasury holds an equity or debt position must be subject to recovery (or "clawback"), by the financial institution if the payments were based on materially inaccurate financial statements or any other materially inaccurate performance metric criteria.³⁶ The Treasury guidelines note that this standard differs from section 304 of Sarbanes-Oxley (which requires the forfeiture following a materially non-compliant financial report) in the following ways:

• Section 111(b)(2)(B) applies not only to the CEO and CFO, but also to the three most highly compensated executive officers;
• It applies both to public and private financial institutions;
• It is not triggered only by an accounting restatement;
• It does not limit the recovery period; and
• It covers material inaccuracies relating to financial reporting as well as to other performance metrics.³⁷

Third, financial institutions are prohibited from making any golden parachute payment to a SEO while the Treasury holds an equity or debt position in the financial institution. For purposes of the CPP, the Treasury uses the golden parachute definition in IRC Section 280G, which would be a payment of more than three times the SEO's average base compensation for the preceding 5 years.³⁸ Under the stricter PSSFI, a golden parachute would be any parachute payment at all.³⁹ For both programs, the Treasury's prohibition of parachute payments applies not in instances of change of control but rather in instances of involuntary termination or bankruptcy or receivership of the institution.⁴⁰

The three preceding requirements are specifically applicable under EESA only to direct purchases.⁴¹ EESA section 302, on the other hand, is only applicable by its terms to Treasury purchases through auction. However, as a condition of participation in the CPP or the PSSFI, the Treasury is requiring that institutions agree to be subject to section 302's limitation on tax deductions for covered executive remuneration in excess of $500,000, including its provision that commissions and performance-based compensation cannot be excluded from the calculation of the $500,000 cap. The deduction limitations will apply on a prorated basis for taxable years that include the period the Treasury holds an equity or debt position in the financial institution.⁴²

The Treasury guidelines also address mergers and acquisitions of institutions involved in direct purchase programs, such as the CPP or the PSSFI. Under the guidelines, an acquirer not related to the target participating financial institution will not become subject to section 111(b) merely as a result of the acquisition. Thus, the SEOs of the acquiring parent would not be subject to the executive compensation restrictions. SEOs of the target, however, would remain subject to the restrictions until after the first anniversary following the acquisition.⁴³

It is worth noting that the criteria enumerated in EESA section 111(b) are not exclusive. The section gives the Secretary general authority to require that financial institutions meet "appropriate standards for executive compensation and corporate governance" that include at least the three specified criteria (no incentives for excessive risk; clawback provision; and no excess golden parachute). The reference to "corporate governance" could give the Secretary power to impose other, even more expansive corporate governance changes. Some earlier versions of the bill included "shareholder access" and "say-on-pay" provisions. While these were deleted as specific requirements, the Secretary appears to have power to impose them or other rules. These could apply to both public and private companies.

2. Assets Purchased Through Auction

A less stringent set of executive compensation standards under EESA section 111(c) applies to institutions from which the Treasury acquires an aggregate amount of at least $300 million in troubled assets through auction purchases or through a combination of auction and direct purchases. The TAAP is an auction program.⁴⁴ Although it is not entirely clear, it appears that while direct purchases may count against the $300 million threshold under section 111(c), they do not per se trigger the more restrictive rules under section 111(b).⁴⁵

Section 111(c) prohibits any financial institution to which it applies from entering into any new employment contract that provides a golden parachute to a SEO. A golden parachute has the same meaning as for the CPP, namely a payment of more than three times the SEO's average base compensation for the preceding 5 years.⁴⁶ A new employment contract is any material compensatory contract, whether or not in writing, entered into on or after the date section 111(c) becomes applicable to the financial institution. It includes a renewed or materially modified contract. A contract is materially modified if it is amended to increase compensation, accelerate the date of vesting, or accelerate payment. The restriction continues throughout the period of TARP's authority and applies to any arrangements entered into during this period. Whether an employee is a SEO is determined at the time the employee enters into the arrangement. ⁴⁷

Because of the controlled group rules, a holding company whose controlled subsidiaries sell in the aggregate more than $300 million in assets (and do not meet the direct purchase standard of section 111(b)) will be subject to section 111(c), as will the holding company's SEOs.⁴⁸ If a participating institution is acquired by an unrelated entity in an acquisition of any form, the assets sold to the Treasury by the target prior to the acquisition are not aggregated with any assets sold by the acquirer prior to or after the acquisition. However, assets sold by the acquirer's controlled group (including the target) after the acquisition are aggregated with all assets sold by the acquirer (regardless of when sold). The acquirer will not become subject to section 111(c) simply because the target was subject to its restriction prior to the acquisition.⁴⁹

EESA section 302 also applies to participants in the TAAP. As noted earlier, section 302 generally limits the deductibility of compensation paid to covered executives in excess of $500,000. In addition, excess parachute payments under IRC section 280G paid to covered executives upon involuntary termination or in connection with a bankruptcy, liquidation, or receivership will not be deductible. Second, an excise tax of 20 percent of the excess amount will be imposed on any excess parachute payment to a covered executive. In general, a person remains a covered executive once they have met the test to be classified as a covered executive even if in a subsequent year such person would not meet the covered executive test. In the event a participant in the TAAP is acquired by an unrelated entity, and if, after the acquisition, an executive subject to the section 302 restrictions terminates employment with the controlled group, no new executive of the participant will become a covered executive merely because of such termination unless he or she is already a covered executive of the acquirer.⁵⁰

¹ There are three tranches of available funds under the TARP. The first tranche of $250 billion became available upon the enactment of EESA on October 3, 2008. An additional $100 billion is available upon submission by the President of a written certification to Congress. The remaining $350 billion, of the total $700 billion, is available upon the President's submission to Congress of a written report detailing the plan of the Secretary, unless Congress passes a joint resolution of disapproval within 15 days of such submission. Section 115 of EESA.

² The term sheet is available here.

³ "Sufficient capital has been allocated so that all qualifying banks can participate. Let me be clear that this program is not being implemented on a first-come-first-served basis." Statement by Secretary Henry M. Paulson, Jr. on Capital Purchase Program, U.S. Dep't of Treasury, Press Release (October 20, 2008), available here.

⁴See the remarks of Assistant Secretary for Financial Stability Neel Kashkari before the Institute of International Bankers, available here.

⁵ An audio recording of the webinar is located here.

⁶See, generally U.S. Dep't of Treasury, Treasury Announces TARP Capital Purchase Plan Description (Oct. 14, 2008), available here, and Treasury, Regulators Issue Additional Guidance on Capital Purchase Program, available here.

⁷ Section 3 of EESA.

⁸Id.

⁹See, note 6.

¹⁰ Section 3 of EESA.

¹¹ The U.S. Dep't of Treasury's CPP term sheet provides that the Treasury "may only transfer or exercise an aggregate of one-half of the warrants prior to the earlier of (i) the date on which the qualifying financial institution has received aggregate gross proceeds of not less than 100% of the issue price of the Senior Preferred from one or more Qualified Equity Offerings and (ii) December 31, 2009." The term sheet is available here.

¹² Section 113(d) of EESA.

¹³Id., § 113 (d)(2).

¹⁴Id., § 113(d)(1)(A).

¹⁵ IRS Notice 2008-100.

¹⁶ Section 114(a) of EESA requires public disclosure of such transaction a description, amounts and the pricing of assets acquired under the Act, within two business days of purchase, trade, or other disposition.

¹⁷ U.S. Dep't of the Treasury, Development of a Guarantee Program for Troubled Assets (Oct. 14, 2008), available here.

¹⁸ Section 101(b) of EESA.

¹⁹ Section 104(a) of EESA. The Financial Stability Oversight Board is charged with reviewing the exercise of authority under a program developed in accordance with the Act, including: (A) policies implemented by the Secretary and the Office of Financial Stability created under sections 101 and 102, including the appointment of financial agents, the designation of asset classes to be purchased, and plans for the structure of vehicles used to purchase troubled assets; and (B) the effect of such actions in assisting American families in preserving home ownership, stabilizing financial markets, and protecting taxpayers. The Board is also charged with making recommendations, as appropriate to the Secretary regarding the use of authority under the Act and reporting any suspected fraud, misrepresentation, or malfeasance to the Special Inspector General for the Troubled Assets Relief Program or the Attorney General of the United States, consistent with 28 U.S.C. § 535(b).

²⁰ Section 104(b) of EESA.

²¹ See, the remarks of Assistant Secretary for Financial Stability Neel Kashkari before the Institute of International Bankers, available here.

²² Section 116 of EESA

²³ Section 121 of EESA

²⁴ Section 125 of EESA

²⁵ Section 119 of EESA

²⁶ Section 114(b) of EESA

²⁷ U.S. Dep't of the Treasury Interim Final Rule, 31 C.F.R. Part 30, pending publication in the Federal Register on October 20, 2008.

²⁸ U.S. Dep't of Treasury, Notice-2008--TAAP--Troubled Asset Auction Program (Oct. 14, 2008), available here; and IRS Notice 2008-94, (Oct. 14, 2008), available here.

²⁹ U.S. Dep't of Treasury, Notice 2008-PSSFI--Program for Systemically Significant Failing Institutions (Oct. 14, 2008), available here.

³⁰ Section 111(b)(3) of EESA; See, also Interim Final Rule, 31 C.F.R. Part 30, § 30.2 Q-2; Notice 2008-PSSFI, Q-2, A-2.

³¹ Interim Final Rule, 31 C.F.R. Part 30, § 30.1 Q-1(b); Notice 2008-PSSFI, Q-1, A-1.

³²See, definition of "Executive Compensation" in the U.S. Dep't of Treasury's CPP term sheet. The term sheet is available here.

³³ Section 111(b)(2)(A) of EESA.

³⁴ Interim Final Rule, 31 C.F.R. Part 30, § 30.4 Q-4; Notice 2008-PSSFI, Q-4, A-4.

³⁵ Interim Final Rule, 31 C.F.R. Part 30, §§ 30.3 Q-3, 30.4 Q-4, and 30.5 Q-5; Notice 2008-PSSFI, Q-5, A-5.

³⁶ Section 111(b)(2)(B); Interim Final Rule, 31 C.F.R. Part 30, § 30.6 Q-6; Notice 2008-PSSFI, Q-6, A-6.

³⁷ Interim Final Rule, 31 C.F.R. Part 30, §§ 30.3 Q-3, 30.4 Q-4, and 30.5 Q-5; Notice 2008-PSSFI, Q-5, A-5.

³⁸ 26 C.F.R. § 1.280G-1; Notice 2008-PSSFI, Q-9(a).

³⁹ Notice 2008-PSSFI, Q-9, A-9(a).

⁴⁰ Interim Final Rule, 31 C.F.R. Part 30, § 30.9 Q-9(b) and (c); Notice 2008-PSSFI, Q-9, A-9(b) and (c).

⁴¹ Section 111(b)(2) of EESA.

⁴² Interim Final Rule, 31 C.F.R. Part 30, § 30.10 Q-10; Notice 2008-PSSFI, Q-10, A-10.

⁴³ Interim Final Rule, 31 C.F.R. Part 30, § 30.10 Q-10; Notice 2008-PSSFI, Q-11, A-11.

⁴⁴See Notice-2008--TAAP.

⁴⁵ This may be because the direct purchases do not carry with them a "meaningful equity or debt position." Section 113(d)(3)(A) permits the Secretary to establish de minimis exceptions to the requirements that the Treasury obtain warrants or debt instruments in connection with purchases of troubled assets, based on the size of cumulative transactions of troubled assets from any one financial institution for the duration of the program. The de minimis exception is limited to $100 million. If the de minimis exception applied, then the Treasury would not acquire any debt or equity position, and therefore, the more stringent standards of section 111(b) would not kick in.

⁴⁶ Notice-2008--TAAP, Q-3, A-3.

⁴⁷Id., at Q-4, A-4.

⁴⁸Id., at Q-1, A-1(b).

⁴⁹ Id., at Q-5, A-5.

⁵⁰ IRS Notice 2008-94.