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Republication: the 2009 Davis Polk Financial Crisis Manual Republication: 2009 Financial Crisis Manual: A Guide to the Laws, Regulations and Contracts of the Financial Crisis, with Updated 2020 Introduction March 16, 2020 Davis Polk & Wardwell LLP Attorney advertising. Prior results do not guarantee a similar outcome. Financial Crisis Manual Republication: The 2009 Davis Polk Financial Crisis Manual Introduction It is back to the future. Federal Reserve Chairman Powell pledged last night to use the “full range of tools” available to support households, businesses and the economy. Today, Davis Polk republishes its 2009 Financial Crisis Manual in the hope that, even though much has changed in the last 11 years, the research it holds, including descriptions of many of the financial crisis era programs and embedded hyperlinks to many of the financial crisis era program documents, might be of help to those who are searching for solutions today. With Secretary Mnuchin’s announcement that he may be seeking expanded powers from Congress, these older materials suddenly have new relevance. As Chairman Powell noted, emergency powers under Section 13(3) are part of the Federal Reserve’s “playbook” even though they have not yet been used. Despite the changes made by the Dodd-Frank Act to the Federal Reserve’s emergency lending powers under Section 13(3) of the Federal Reserve Act, many of the financial crisis programs, or close variants, are still possible today. These include the Commercial Paper Funding Program, the Primary Dealer Funding Program, the Money Market Mutual Fund Liquidity Facility and the Term Asset Backed Liquidity Facility. Some programs that concentrated on individual companies are no longer possible. The key difference is the need to have the approval of a supermajority of the Board of Governors of the Federal Reserve System, the concurrence of the Treasury Secretary, assurances that the companies are not insolvent, a broad based program and public disclosure and reporting. Chapter 1 contains important historical data about Section 13(3) that is still valid as well as a description of each of the programs established in 2008 under this authority and hyperlinks to their underlying documents in the References section at the end of the Chapter. See here for an updated version of Section 13(3), and here for the Federal Reserve’s implementing regulations. Chapters 2, 3 and 4 contain information on what become known as the TARP program, Chapter 5 describes the FDIC’s Temporary Liquidity Guarantee Program, which is limited to insured depository institutions and their holding companies. The FDIC’s authority continues post the Dodd-Frank Act but with more limits on its use. Chapter 6 describes the Term Asset Lending Facility which was designed to help the securitization markets. The remaining chapters are less relevant in today’s environment. We hope that having much of this history in one place will help us in making the future. Margaret E. Tahyar, Editor of the Financial Crisis Manual March 16, 2020 A Guide to the Laws, Regulations and Contracts of the Financial Crisis September 2009 Davis Polk & Wardwell llp Attorney advertising. Prior results do not guarantee a similar outcome. Financial Crisis Manual Crisis Financial FINANCIAL CRISIS MANUAL Summary of Contents Introduction ....................................................................................................................................................... 1 Financial Crisis Legal Timeline ..................................................................................................... 5 Glossary ....................................................................................................................................................... 7 Chapter 1 Federal Reserve Emergency Intervention Authority: Old Tools Used in New Ways ........... 18 Randall D. Guynn, Annette L. Nazareth and Margaret E. Tahyar Chapter 2 Emergency Economic Stabilization Act: The Original Vision ............................................... 41 Randall D. Guynn, Annette L. Nazareth and Margaret E. Tahyar Chapter 3 The Capital Twist......................................................................................................................... 67 John M. Brandow, Randall D. Guynn, Michael Kaplan and Margaret E. Tahyar Chapter 4 Warrants: Upside for the Taxpayer .......................................................................................... 105 John M. Brandow and Michael Kaplan Chapter 5 The FDIC’s Temporary Liquidity Guarantee Program ............................................................. 116 Luigi L. De Ghenghi, John L. Douglas and Reena Agrawal Sahni Chapter 6 The Term Asset-Backed Securities Loan Facility.................................................................... 144 James A. Florack, Leor Landa and Danforth Townley Chapter 7 The Public-Private Investment Program ................................................................................... 181 John L. Douglas, Yukako Kawata, Margaret E. Tahyar and Danforth Townley Chapter 8 Investigations and Enforcement................................................................................................ 207 William J. Fenrich, Jennifer G. Newstead, Linda Chatman Thomsen and Raul F. Yanes Chapter 9 Executive and Employee Compensation.................................................................................. 233 Beverly Chase, Edmond T. FitzGerald, Kyoko Takahashi Lin, Jean M. McLoughlin and Barbara Nims About the Authors................................................................................................................................................ 261 i FINANCIAL CRISIS MANUAL Detail of Contents Introduction ....................................................................................................................................................... 1 Financial Crisis Legal Timeline ..................................................................................................... 5 Glossary ....................................................................................................................................................... 7 Chapter 1 Federal Reserve Emergency Intervention Authority: Old Tools Used in New Ways ........... 18 Randall D. Guynn, Annette L. Nazareth and Margaret E. Tahyar Federal Reserve Emergency Lending Powers ................................................................... 20 Section 13(3) of the Federal Reserve Act .......................................................................... 20 Term Securities Lending Facility......................................................................................... 22 Bear Stearns ....................................................................................................................... 24 Primary Dealer Credit Facility ............................................................................................. 27 Loans and Equity Investments in AIG................................................................................. 28 Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility and Commercial Paper Funding Facility ....................................................................... 32 The Term Asset-Backed Securities Loan Facility............................................................... 34 Authorized Programs That Have Not Been Implemented .................................................. 34 Lehman — Limits on the Use of Section 13(3)................................................................... 35 Proposals for Reform............................................................................................................ 35 Transparency, Disclosure, Accountability and Independence............................................ 36 Balance-of-Power and Regulatory Reform......................................................................... 38 References ............................................................................................................................. 40 Chapter 2 Emergency Economic Stabilization Act: The Original Vision ............................................... 41 Randall D. Guynn, Annette L. Nazareth and Margaret E. Tahyar The Original Treasury Proposal and the Bill’s Passage.................................................... 42 What is a “Financial Institution”? ........................................................................................ 44 “Financial Institution”........................................................................................................... 44 “Significant Operations” ...................................................................................................... 46 What is a “Troubled Asset”?................................................................................................ 46 Definition of Troubled Asset................................................................................................ 46 Preventing Unjust Enrichment ............................................................................................ 47 Warrant Requirement ............................................................................................................ 48 Executive Compensation...................................................................................................... 48 Pricing, Market Mechanisms and Reverse Auctions ......................................................... 48 Spending Limits and Funding .............................................................................................
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