Treasury Department Defends Capital Purchase Program

Interim Assistant Treasury Secretary for Financial Stability Neel Kashkari today cited the role played by the Capital Purchase Program under TARP in preventing the collapse of the U.S. financial system. The Capital Purchase Program, which provides financial institutions liquidity in exchange for shares held by the Treasury Department, has disbursed $151 billion since the end of October, according to the Treasury Department. 
Mr. Kashkari said, "People often ask: how do we know our program is working? First, we did not allow the financial system to collapse. That is the most direct, important information. Second, we know the system is more stable than it was when Congress passed the legislation. While it is difficult to isolate one program's effects given regulators' numerous actions, one indicator that has pointed to reduced risk in the system is the average credit default swap spread for the eight largest U.S. banks, which has declined almost 207 basis points since before Congress passed the EESA. Another key indicator of perceived risk that we are tracking is LIBOR: 1 month LIBOR has declined 217 basis points and 3 month LIBOR 202 basis points." 
Click here for Mr. Kashkari's complete remarks.

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